Your business plan is your personal blueprint for trading success. It
includes not only your goals, but a detailed plan of how you plan to get
there. This plan should go far beyond the details of your trading methodology.
It should include structuring not only your trading environment, but your
whole life. Your mind and psyche are your main trading assets. How do you plan
to protect them throughout the year?
Your business plan should be structured to motivate you to make higher
highs in your account equity. This sounds like a given, but you must truly
fight to come back from each drawdown. You must have allowances in your plan
not to give back more than a minimal percentage of profits. Your trading plan
must include all the details such as which markets you will trade, which
strategies you will follow, and what type of leverage you will use. Only by
having a trading plan will you be able to avoid emotional trading decisions.
I am of the belief that it is never too late to start thinking about
working on a business plan for the current year. It is also never too early to
think about putting together a business plan for next year. This is because it
will take you some time to think about the things that I am going to say, and
work on your own program.
Trading is abstract and there are so many questions and decisions to be
made that come up during the day. Your goal as a trader is to execute your
plan and leave the thinking out of it. A daily plan helps to aid in providing
ritual, organization and structure.But before you think about how to construct
your daily game plan, you need to first put together a broader annual business
plan. In setting up your larger business plan, you will be designing a trading
program for yourself. Many of the questions our office receives pertain to
what type of trading patterns to follow, what time frames to trade on, how to
place orders, and which markets to trade. Your business plan should address
When you setup up your program, you should think of yourself as your own
best client. Your account is a client. Your goal should ultimately be to
design the type of program you could trade several accounts on, or, think if
you wanted to add just one client. You would need a very specific type of
program to present to that client, and then, assuming they would be monitoring
your trading activity everyday, you would be more conscientious about
following your program. Leverage and money management issues would be
addressed in this "program", as would markets traded, drawdowns, types of
trades made, etc. I will share with you some of the ways I design my program.
Before I do, the business plan includes so much more. It must also include
goals and motivational factors, as well as rules, guidelines, and plans to
keep you away from trouble areas or spots that you are weakest in.
I find that as a trader caught up in the markets, it is hard to take time
off. So it is easy for me to hit the burnout point. I have a tendency to put
too many positions on. Taking positions into the last day of the quarter seems
to be my achilles heel and bite into my bottom line. So, I am making a very
clear provision in my business plan for 2000 NOT to have big positions on
going into the last day of the quarter. If you want to give yourself the
liberty to take several weeks as you develop your plan to still break a few
rules, think about it as you do it. Think which rules are really going to
serve you best. This is why I said it might take some time to mull over a few
I will give you the essence of my program and then you will see how easy it
is to design your goals around your plan. I have separate accounts, one for
scalp trades, and one for position trades. Now It is easy to design different
goals for each program. For example, if the SPs are the only market you are
trading, one goal could be to include a range of expected activity level in
making SP scalps. This could comprise your core program or be designated as
supplemental activity. By having a goal to make a certain amount of scalp
trades a week, you will challenge yourself a bit.
Will you include position trades, index options or GLOBEX activity in your
program? Look at you past trading performance. It is easy to break down if you
are more profitable sticking to short term scalps, or how much holding
longer-term positions really adds to your bottom line. I like to keep my SP
scalping activity separate, so for longer-term positions, I like using the
NASDAQ futures or SP options as a separate trading vehicle. For trades made in
the domestic futures markets, I try to hold trades anywhere from 2 - 8 days.
Occasionally I will day-trade the bonds, but I try to play for overnight
follow-through in most markets. This was my basic program carried over from my
So, I essentially have three separate programs: SP scalping, short term
swing positions based off classic chart patterns and 2-period Rate of Change
pattern recognition, and long-term positions which can also include stocks,
options, mutual funds, etc. You need to think about your mix that will work
for you and be CLEARLY organized as to how you are going to manage your money.
Each account should have a specific level of funding and number of contracts
that can be traded in it.
There should also be leverage guidelines and money management rules for
each type of trade. Most of the time I do not use my full line. I trade 1
contract per "x" number dollars in my account. Determine a unit size for
yourself. As your account grows, you can add another contract. These things
should all be spelled out in your business plan.
As for goals, you can structure those two ways. Some people set a dollar
amount goal for their trading activity. I have actually avoided doing this in
the past, instead choosing to focus on maintaining a certain amount of
activity level. I figured if I just did the best job I could each day, the
profits would take care of themselves. Sometimes setting a dollar amount can
be discouraging during drawdown periods or encourage you to force trades when
nothing is going on. This year, I want to have my biggest trading year ever,
so that is my goal.
But for some people, a better goal might be to do "x" number of trades on a
regular basis, or try for "x" number of SP points per week. This helps to
reach the larger goals. I would like to reach half my goal from my daytrading
account and half from my position account. Now the question has come up,
sometimes gains are unevenly distributed. If you set a target for yourself to
make 3 SP points per day for each contract you trade, than do you quit when
you make these three points? It doesn't quite work that way. When you are hot,
you are in synch and should keep trading. If your 3 points come easy to you,
than why would you quit on the day? You could very easily have a scratch day
the next day...or even a losing day.
But you must have SOME sort of guideline. This will serve
as your motivation to make a trade in the first place! You must have some
reason to pull the trigger in the first place, because so many times it is too
easy to hold back on being aggressive. Set a goal that you can not only reach,
but that you can exceed. So again, if you are a newer trader starting out with
a small account, perhaps your goal will be to take 8 SP points out per week.
How are you going to achieve that? If you have a smaller amount of capital you
do not want to trade on a longer time frame. You need to find 1-2 spots a day
where you can go in and try for 2 points.
Now you are breaking your goal down into bite size pieces. How much can you
risk on each trade? When I make "short skirt" type trades, I automatically
risk no more than three points. If you decide that you can't risk more than 2
points, you are going to have to be very careful on picking your spot. You
must be able to see your risk point before you go in. See the market turn and
then enter "at the market" or as close to that turn as you can. So, that might
be a "program" that you can start out with. Now, what might happen if you
start out with your scalping program, is that for a few days, the markets
might be dull, choppy, Perhaps you feel like you are behind your goal a bit.
But then one day, your 2 point trade turns into a 5 point one...or, you get
motivated and make a few more trades and exceed your goal. OK?
Don't put pressure on yourself to make x-amount everyday, but you must have
a guideline for what you would like to achieve on a monthly basis. Then at the
end of the month, you ask yourself, how is your performance standing up to
your business plan? If it is falling short, what needs to be adjusted? The
biggest things that keep a trader from meeting their plan are: getting sloppy
a few times, forgetting to place a stop, or getting stubborn on one trade.
These are the things I see. One mistake waiting to bite you in the rear.
But guess what...it is possible to make all these mistakes and yet
STILL make money. Astonishingly, the markets can be more forgiving
than we think. It just takes a bit of persistence. So, each month, set your
goal to do a better job than the month before. All you have to do is work on
making fewer mistakes.
OK!...on to some more parts of the plan - record keeping and structure.
THIS IS AN EQUALLY IMPORTANT PART to your business plan. Here
is why. Routines and rituals keep things automatic. Additionally, they help
set up the daily Game Plan (which we will get to next). A trader needs to get
to the point where picking up the phone is just one more thing he does during
the day. At the end of the day, I log all my daily numbers. This might seem a
useless endeavor since this data is already listed on my computer and I am
merely writing it down on paper. But this ritual brings a certain amount of
relief to me because I can shut down making all decisions and do some
therapeutic grunt work. I thrive on menial tasks and grunt work because I do
not have to think during this time. It is a ritual that wipes my mind clean of
all the good and bad that happened during the day.
I also have sheets where I log each trade, and lately I am becoming more
diligent about doing my P&L at the end of each day. I used to do this during
the eighties but stopped the last few years. Part of my business plan for this
year includes becoming even more involved in record keeping. I am monitoring
the amount of slippage on each trade and the average holding time for each
type of trade. You see, you must make it into as much of a detailed game as
possible to draw yourself into the game, increase the intensity.
The object is not to burn yourself out either - wrong idea. You do not have
to focus on every tick, but rather the opposite. Keep your monitoring of the
markets a Zen type of thing, meaning stay loose and relaxed. Sometimes the
best trades will happen out of the corner of your eye. For example, perhaps
you have been watching a market for a few days. You have been doing your
nightly homework watching a particular setup unfold. Then, when the market
starts to act a certain way that confirms your analysis is correct, you should
be all over it.
You can't force the trades, but when you are relaxed you will see them
better. The best way to stay relaxed and loose is to be involved in some sort
of ritual. Like the tennis player who bounces the ball up and down a few times
before he serves, does a dance with his feet and wipes his brow - these are
all rituals to keep his serve loose. The same tricks apply with trading. You
can doodle and make swing charts on paper during the day, write down periodic
readings of the ticks, or note extreme price levels.
I hope you are getting the basic idea so far, because I do not want to
elaborate to the point of overkill. But here is one more example. The person I
worked for when I first traded on the Philadelphia Exchange had been a
physicist. He spent 1 1/2 hours at the exchange before the market opened and
would be there for an hour and a half after the close. He was very methodical
and organized, writing out tickets and orders in advance. He was quiet and
unassuming, and as I found out later, he was also one of the most consistently
profitable traders down there. The person who first backed me when I traded in
San Francisco taught me to chart the 3/10 oscillator every night using
Security Market Research charting service. He also taught me to log the daily
trin, tick, breadth figures, etc., in addition to writing out orders for the
next day. Both these guys are still trading today.
These are some of the common traits I have noticed among those traders who
succeed. They all have daily routines and rituals. You must balance out the
abstract conceptualizing process the market requires with some tangible
Your business plan should include making a daily Game Plan for each day's
trading. What type of strategy are you going to use for the next day? Is the
market due for a consolidation type day, one that starts to form a small
trading range? Or is it poised for a breakout, a potential trend day? Is there
an opening play for the morning? For example, if there is an early morning
sell off, will it setup a buying opportunity? Or should rallies be shorted?
Your game plan could include looking to sell a test of the previous high or
buy a pullback to the hourly moving average.
At night, it is easy to note where the hourly grail patterns might be in
other markets. Write down imaginary orders..."Buy Silver at such and such a
price if it retraces to EMA ". You will be more
likely to make the trade if you follow this practice. Perhaps there is a
particular market you have been following with a directional bias. Write down
the previous day's high or low and use that as your pivot.
When managing longer-term trades, you will be more likely to stay with them
if you write out clear instructions for trailing a stop. Write down your stop
level and continue to move it as the market moves in your favor. My favorite
way to trail a stop is to use a two-bar channel stop, or to use hourly support
and resistance levels. In a downtrend, I will trail it just above the last
hourly swing high, but in an uptrend, I will give it more room and trail it
beneath the hourly low of two levels ago. Trail your stop not on the last
swing low but the one before that one. This is because up-trending markets are
more prone to A-B-C type corrections. There is not a perfect way to trail a
stop - they all have their flaw. A 2- bar trailing stop works well, on paper,
but personally, I hate the give back on any trailing stop and usually look to
exit on some sort of buying or selling climax.
Sometimes, trading in another market can be a good diversion to keep you
from taking profits too early on a position that is working. You have to let
time work FOR you in winning positions.
Game plan - Business plan - overall trading environment structure...just
start thinking about the way you really go about things. Get yourself down to
a one day at a time type of process. Even if you are a position trader, your
job is not to think about too far into the future, it is still to take one day
at a time, even if it is just a monitoring process. The tape is always in the
here and the now. Your goal should be to do the best job you can that
DAY . Follow your rules and your game plan for that
day. If the market moves in ways that were not in your game plan, that is OK.
The wrong game plan is always better than no game plan at all. At least if
your game plan is wrong, you will know it fairly quickly and that in and of
itself has forecasting value.
It is OK to miss a million trades, but it is not OK to miss one that setup
on your game plan you have been waiting for. You can also adjust your game
. Perhaps you were looking to sell a
rally back to the hourly moving average, but the market blasts on through. It
is OK to say, "because the market failed at that benchmark, it might mean
there is a stronger move in the opposite direction". Perhaps then it would
signal to switch gears and start looking for the first 5-minute grail buy. You
get the idea!
Here is a list of some of the types of things you can include in your
annual business plan. This will give you something to work on. Start thinking
about putting together a professional program, comprised of bite size pieces.
What methodology or patterns are you going to trade?
It is OK to have a "library" of setups, but most people do best
concentrating on a niche or particular technique. Learn to do one thing
consistently well instead of trying to master too many styles.
Which markets are you going to trade? If you
trade equities, think about keeping a "stable" of stocks to follow. Don't
get caught up in scanning a database of too many issues that you are not
familiar with. It invites unfortunate situations where there may be pending
issues or reports in the company that you are unaware of. If you have not
had much success trading soybeans or silver in the past, why try to continue
to trade them in the future?
How much capital are you going to put into your trading
accounts? Something I have to add here, stay away from looking at
percentage returns when evaluating performance statistics, such as percent
return or drawdowns, on your personal account. Concentrate instead on dollar
amounts. What is your dollar amount tolerance? My stomach turns at a
specific dollar amount drawdown. Percentages vary too much according to how
much money you keep in your account. You might have a net worth of 1 mil and
keep 100,000 in your trading account and your situation will be entirely
different than a person who has 5 mil and keeps 100,000 in trading account.
The person with the higher net worth will feel freer to use a different type
of leverage. So think in terms of dollar amounts...how much are you willing
to draw down to?
How do you plan to enter, exit, and manage trades?
I like dividing my contract size into two units. Sometimes I go all in and
then scale out in halves. Other times I put half on and look to add the
other half. Some positions I keep half on as a core and use the other unit
as a scalping unit. Whatever style you choose, it should be written down
into your plan.
What is your plan to manage drawdowns? How will
you evaluate when you need to take time off?
What are your monthly goals? Are you going to
strive to make a certain number of trades each week or perhaps a certain
number of SP points? Remember, these are guidelines by which to measure your
progress. Some months will be better than other months. The end of the month
is a good time to do a periodic review. Most businesses do this on a monthly
or quarterly basis.
Include a daily routine in your overall business plan.
How are you going to evaluate your performance each day? Keep a notebook of
the things you do RIGHT. Pat yourself on the back for small moral victories,
such as exiting a losing position in a quick fashion. Note the small
incremental improvements you make.
Create an office environment designed to
facilitate performance. Eliminate distractions and outside influences.
Reduce glare and get a comfortable chair. Invest in good equipment. Invest
in an excellent data feed.
Include a provision that will keep you from trading if
outside circumstances create an unusual stress, such as health,
divorce, or a major move. You might as well just write a check out of your
trading account and kiss it goodbye. This is a hard thing to recognize
before it is too late. People LOSE money during times of 10 major stresses:
death, taxes, divorce, moving, health...you get the point. Trading is a
performance-oriented discipline. If you can't perform well, cancel the
show... If a tennis player severely sprains his ankle, he cancels the match.
Why do damage to your ratings? Why mar your statistical record with
Record Keeping - Rate yourself on your routine
and structure and nightly homework. Do you do research or have way of
logging results? What type of research is included in your program or plan?
My problem is I stack too many projects up on back burner. I need to
streamline this area for myself. Or, I get diverted doing research, go off
on a tangent late at night and stay up way too late. Then I am not in
optimal condition the next day. My business plan includes a bedtime. I
promise myself to adhere to it.
Rewards! All work, no play makes Jack a dull
boy. You must have outside interests or hobbies to get your mind off the
markets at the end of the day. You must treat yourself to something you
really want. If you spend money on your self you will eliminate subconscious
poverty thoughts. I am serious. Treat yourself like a million bucks and you
will be worth it soon. Maybe after a good week you treat yourself to a
massage, or buy something you really want. I already have something in mind
that I will do for myself if I meet my goals next year. It is something that
does not cost too much but that I could never justify spending money on
because it might seem frivolous. But the money comes from my trading account
so nothing is frivolous!
LASTLY, what plans do you have to continually improve yourself? See
yourself as a top-notch person, health-wise, performance wise, and attitude
wise. How do you keep advancing in life? You know the old saying, if you are
not going forward, you are going backward. Educational pursuit such as books
and study courses are important, but don't neglect spiritual pursuit, or
outside projects... or working with a charity.
All the above
subjects are more important to your long-term success in staying in this
business than any trading indicators or setups! People do not lose money from
entering on bad setups. They lose money from getting sloppy in their trading
and sloppy in their habits and life. They allow emotional trades to creep into
their program because they have not done their homework and are not prepared.
Your business plan is a contract with yourself. It is a contract to treat
yourself as your own best client. Surrounding yourself with guidelines, rules,
and an overall structure can be the vehicle that brings you freedom from
performance anxiety and gives you the confidence that you can take your
trading to the next level.
they are everywhere.............. God
is good all the time
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