A large percentage of those who trade believe structures and systems restrict their freedom of expression.
While that might be true at times for some, for most of us, a defined and structured trading process allows us to focus on increasing our performance skills; benchmarks help us monitor our progress and address areas showing less than target-performance metrics, guiding our improvement.
We believe the purpose of a trading plan is to support traders to:
- perform congruent with their principles.
- exploit and capitalize on their education, training and experience.
- consistently increase the proficiency of their “hard” and “soft” trading skills.
Breaking It Down. Poorly defined projects or tasks generate anxiety, often leading to procrastination. In our opinion, a trading plan is not a static document but an ever-evolving, self-authored, dynamic-working draft of three-part process. The following illustrates our approach to a contextually designed trading plan.
While each of these three primary components of a trading-plan process are important to one’s trading, it is the specific elements, when applied, that provide an edge. The following is not meant to be all-inclusive, but offers an example of various elements that many traders incorporate in their trading plan.
PRE-TRADING SESSION – Preparation
- Trader Condition (The things we do to prepare ourselves as traders for a trading session.)
Physical: Self-rating – walk, brisk exercise, etc.
Mental: Self-rating – meditation, visualization exercise, etc.
Emotional: Self-rating – breathing exercise, yoga, etc. - Trading Environment (The things we do to prepare our trading space for trading.)
Trading Desk/Hardware/Software
Internet connection/Security
Phone systems/Support numbers
Lighting /Noise levels - Trading Tools and Market Evaluation (The things we do to prepare ourselves to trade the market.)
Review previous sessions./Market correlations/Market context.
Replay previous sessions./Determine key levels.
Review logs./Journal./Trading plan
Confirm upcoming news./Check support services.
Develop potential scenarios.
TRADING SESSION – Application and Execution
- Trade Opportunity Identification and Qualification
Determine the market’s current context, content, condition, and relationships.
Determine market’s alignment and congruence with your trading methodology.
Quantify potential risk/reward scenarios for the current trade opportunity. - Position Initiation
Determine and follow your pre-determined entry execution procedure.
Implement your pre-determined risk threshold/parameters for this position. - Position Management
Monitor and continually make adjustments to your open positions – positive, negative, or neutral.
Make risk reduction adjustments based on pre-determined risk policies and procedures. - Position Termination
Implement position termination procedures based on interpretation of market-generated information based on pre-determined trading-plan policies and procedures.
POST-TRADING SESSION – Analysis and Improvement
- Post-Session Mechanics
Verify status of open positions and adjust as required.
Verify equity-run accuracy.
Log and journal session activity.
Journal what worked and didn’t work. - Review and Understand
Determine what worked and didn’t work…and why.
Define areas requiring more work, and outline corrective actions.
The above examples are provided to stimulate your thoughts on how you might break down your own trading process. Over time and with continual refinement, you will find procedures and routines that work best for you.
Though what I’ve described here is counter to typical advice about trading plans, I also suggest employing three tools to help you design and implement them:
1. The Mind Map: A visual tool for designing and developing a trading plan
2. The Checklist: A visual tool to maximize the effectiveness of a trading plan
3. Simple Rules: Brief rules focused on exploiting Mind Maps and checklists
In closing, I remind you that your trading plan is an ever-evolving, self-authored, dynamic-working draft—a tool that helps you clarify and capitalize on your uniqueness as a trader.
Until next time . . .
