Create your Trading Plan. Part 1

My story is probably somewhat similar to yours. I follow the stock markets daily since 2008. That year I began investigating the stock trading world, due to the real estate crisis that ate part of my investment portfolio designed by bank "financial experts". As an engineer, I'm always interested in finance, so I took the decision to manage my savings by myself.

I started part-time, in a self-taught way, studying the bases of stock trading and options. First with basic books for dummies and then other more technical like those of Alexander Elder, Adam Grimes, or Bill Johnson, that helped me a lot. The years passed, the accumulated knowledge, the experience gained and the disappointments received were fine-tuning my trading style, but it was just that, a style, or a group of different strategies, not really a plan.

One initial style was to scan for "cheap" companies with potential based on their fundamentals, valuations, highlights, and then, using diverse technical indicators, decide the entry to buy. And I never cared about the exit. I did day and swing trades of big-mid-small cap stocks and pennies, play earnings and IPOs, the greedy buy-the-dip with cheap very OTM call options, tried entries with "incredible" technical indicators, created stock scanners, used strategies from other traders, etc. Many styles and ways, with some interesting gains and many losses... but gaining experience.

My various styles didn't work on a regular basis as I wished. I needed to focus on what was most comfortable for me, simplifying the way I operate. So I continued studying and practicing, recording my trades, and finally understood that stock trading is just a war against the big guys who have all the advantages, so I shouldn't be against it, just follow them. And so, step by step, I improve my psychology and my trading "style" in all aspects: I selected a specific market, I emphasized risk/reward, I used better time frames to define entries and exits, and used always an stop-loss. I began to improve my taking-profit and cut-loss methods, I chose fewer technical indicators, and the key: I gave priority to technical analysis through the interpretation of Price Action. After a long road, my Trading Plan was generating itself... and so until today: I'm still trading part-time and continue studying, fixing errors, trying to improve my work building my trading plan with an edge.

Education. Practice. Backtest. Patience. Discipline. As learning a new skill. That's what retail trading is all about!


A Trading Plan is the best Weapon for a Trader

Finally, a Trading Plan is just a neat guide on what to do, previously to open a position. A guide that should always be strictly executed and without emotions. You will know where, when, how much, and why you will risk your money on a specific underlying. 

Understand that any plan is put together only from the experience gained, not from reading a manual or a blog like this because there is no fixed rule to follow to develop one. In my plan creation, I considered these seven components:

1- Personal Goals: be realistic and objective in what you want to achieve with stock trading

2- Emotions Control: the fundamental weapon of every trader, that is achieved only with time and work.

3- Risk Management: basic rules in trading, designed by oneself and that must be strictly adhered to.

4- Markets, Instruments, and Conditions: establish the ones in which one feels more comfortable, according to our experience gain.

5- Operating Style:  basically, are the rules of the game: when, where, and how to do it.

6- Strategies for Entries and Exits: being successful in trading finally will depend on these decisions.

7- Trading Tools: less is more, select a few indicators, so you can focus on the most important data, the price.

In the next post, I will make a brief summary of how I applied each point, what served or did not me in each case, and what I'm still using today.

Good trading,

Previous Post Next Post