CREATING A TRADING PLAN PART 3
Trading Goals
Setting goals is an essential part of your trading plan as they provide you with a beacon to work towards, the ability to track your progress and the motivation required to get the job done. Try to define your goals in terms of your development as a trader, as opposed to purely financial goals. If you focus on becoming a proficient trader, the financial rewards are sure to follow just as night follows day. Then decide how you will achieve these goals and how you will reward yourself once you do. The rewards should reflect the scale of the achievement as well as being specific and meaningful to you. For example, the reward of a night out should name both the venue and the people you intend to take with you.
Annual trading goals:
This looks at the big picture, think of the knowledge and the skills you want to have in a years time.
An example will be: My annual trading goal is to . . . (develop my trading ‘edge’ in order to tip the balance of probabilities in my favour. At the moment, this comprises three separate elements, namely:
1. I receive coaching from _____ ________, who is one of the best practitioners of the strategies that I employ.
2. I model the best trading practices, including having a written, clearly laid out trading plan.
3. My strategies are well developed, tested and monitored comprehensively to ensure that they remain tradable, market sensitive and profitable). I expect to achieve these goals because . . . (in addition to the coaching, I read xyz magazine and study the words of wisdom from the more experienced members of Forex Factory. When I achieve my goal, my reward will be . . . (a two week family holiday in Japan).
Monthly trading goals:
An example will be: My monthly trading goal is to . . . (achieve consistent profitability every month, with a Success ratio of 2:1 or more. I expect to achieve these goals because . . . (I review my performance on a daily / weekly / monthly basis and quickly spot any problems, should they occur). When I achieve this, my rewards will be . . . (a celebratory meal out with my partner / family in a porch restaurant).
Weekly trading goals:
We need to zoom in closer on the details now.
An example will be: My weekly trading goal is to . . . (trade every day of the week in accordance with my trading plan. This will entail taking my stops instantly; sticking to my risk and money management strategies; following my exit criteria and devoting most of my time to searching for new trades and choosing only the very best setups). When I achieve this goal I will pat myself on the back by . . . (having my favorite wine and cigar at Wine Connection in town).
Daily trading goals:
We are zooming even closer into the details. Every day what do you what to achieve?
An example will be: My daily trading goal is to . . . (trade according to my plan. Today I will stick to my plan because it is detailed, specific, tested and profitable. I am confident that I have the self discipline to adhere to it which, in turn, will ensure that my weekly, monthly and annual goals are met). Assuming that I stick to my plan, I will pat myself on the back by . . . (Watching my favorite drama for an hour)
What markets are you going to trade
You have a choice on which market to trade, it could be currencies, stocks, index, oil....the list goes on. Every trader has a reason on why he wants to trade that particular instrument. You will need to list down the reasons why you want to trade this currency pair or this stock. Also list down the number of instruments you are looking at.
An example will be: The instruments that I will trade are . . . (U.S. stocks in the evening after work because good opportunities exist in the 7-9pm session. They also provide excellent liquidity, volatility, tight spreads, fast fills and low commissions). The currency pairs I am looking at is ….... because........
What time frame will you be trading in?
By now you would have decided what kind of trader are you or would like to become (swing, intraday or position trader). After deciding on what kind of trader you are, you have to focus on the time frame you will be trading in. You must be clear in how many time frames you will be trading in any why you will be using them.
An example will be: As a swing trader, I will use . . . (daily charts to determine the trend; 10 minute charts to enter and exit positions and 60 minute charts to monitor my open positions).
Showing posts with label TRADING SYSTEM. Show all posts
Showing posts with label TRADING SYSTEM. Show all posts
Wednesday, July 22, 2009
Wednesday, July 15, 2009
CREATING A TRADING PLAN PART 2
CREATING A TRADING PLAN PART 2
Look at the man in the mirror.
Let get to business now. “Your mental state is key in trading successfully” Peter Crown. You have to be right in the mind before beginning to trade. What we are going to do now is set the foundation, to answer questions most traders are afraid to ask themselves. By asking yourself these questions and answering them truthfully, you will find that you become grounded and you will have a goal for trading. Please add this into your trading plan.
Why do you want to become a trader?
Normally the first answer that pops into the mind is to make money. That is true, but you would have to dig deeper. There are other easier ways to make money, and making money in trading is very hard work.
An example of an answer: I want to be a trader because . . . (I am excited by the challenge to be successful in a discipline that is notoriously difficult and where, allegedly, 90% of participants fail). My primary objective in wanting to be a trader is to . . . (generate sufficient annual income of $______ in order to support my family). My secondary objective is to . . . (spend more time with my family and enjoy the freedom of being able to trade from anywhere in the world). These objectives are important to me because . . . (they provide purpose and direction to my life and enable me to lead a more balanced one). I believe I can achieve my objectives because . . .
What kind of trader are you?
Are you a technical or fundamental trader? Are you a discretionary or a mechanical trader? Are you looking for short term or long term trades? Are you a position, swing or day trader?
An example of an answer: I am a discretionary trader and my style is very . . . (aggressive - which makes me suited to scalping intraday or, alternatively, conservative – which makes me suited to swing trading end of day (E.O.D.)). I understand that I cannot predict the future and I accept that I cannot control the markets. However I can control myself, which I will do by . . . (adhering strictly to my trading plan that is detailed, specific, tested and profitable).
What are your strengths and weaknesses?
You will have to list all your strength and weaknesses in trading and you will have to elaborate on how it will help or hinder you in your trading experience. If you have trouble answering this question, paper / demo trade for sometime and note if you are doing something wrong or right. Do this until a pattern emerges which should reveal to you your strength and weakness.
An example of an answer: My primary strength is . . . (allowing my profits to run and closing trades in accordance with my exit strategy. This contributes to ‘my edge’ and helps me towards my goal of being consistently profitable in the markets). My secondary strength is . . .
My primary weakness is . . . (wanting to recoup a loss quickly which, almost inevitably, results in increased losses). The following aspect of my trading plan will help to control this weakness and prevent losses from spiralling out of control . . . (I have a pre-defined daily stop. If it is hit, I stop trading
for the day). My secondary weakness is . . .
Are you in the right frame of mind to trade?
Like it was mentioned before, your mindset is the key in trading successfully. Ask yourself, have you slept well, are you fit, healthy and mentally alert, are u calm and relaxed or tired and distracted my things happening around you?
An example of an answer: I will only trade on days when . . . (I am rested, relaxed and not distracted by work or family etc. I will be guided by my trading plan and I will adhere to it rigidly. It will help to prevent me from making trades that are poorly conceived and executed; i.e. trades that are based on gut feeling and motivated by fear and/or greed).
I will not trade on days when . . . (I am feeling off colour, hung over, particularly tired or when
I am mentally distracted by other events in my life).
What kind of income are you looking at or hoping to get?
We all want to make money in trading, that's a given. It is important to know what kind of income you are looking at? But there's a catch, if you have a 10k account, don't expect to make it into a 100k account in a month. Be realistic. Only by testing the systems will you have an idea of what kind of income you are looking at. Don't wish for the sky because it could crash on your head.
An example of an answer: My financial targets are . . . (to achieve a return of X% per year, which equates to an annual income of $______ without the drawdown on my account exceeding a maximum of Y%. This equates to an average monthly income of $_____, an average weekly income of $____ and an average daily income of $___. Therefore, I have a daily target of Z% of my total equity).
I think I will stop here for today and get back to trading. The next part will setting trading goals. A trading plan takes time to make, but to be frank with you, the trading plan has saved me from loosing my head many times and it's worth the effort to create one. The trading plan will have everything, your whole thought process, and these questions and answers should be in the trading plan, it helps to create a foundation where you know who you are.
Look at the man in the mirror.
Let get to business now. “Your mental state is key in trading successfully” Peter Crown. You have to be right in the mind before beginning to trade. What we are going to do now is set the foundation, to answer questions most traders are afraid to ask themselves. By asking yourself these questions and answering them truthfully, you will find that you become grounded and you will have a goal for trading. Please add this into your trading plan.
Why do you want to become a trader?
Normally the first answer that pops into the mind is to make money. That is true, but you would have to dig deeper. There are other easier ways to make money, and making money in trading is very hard work.
An example of an answer: I want to be a trader because . . . (I am excited by the challenge to be successful in a discipline that is notoriously difficult and where, allegedly, 90% of participants fail). My primary objective in wanting to be a trader is to . . . (generate sufficient annual income of $______ in order to support my family). My secondary objective is to . . . (spend more time with my family and enjoy the freedom of being able to trade from anywhere in the world). These objectives are important to me because . . . (they provide purpose and direction to my life and enable me to lead a more balanced one). I believe I can achieve my objectives because . . .
What kind of trader are you?
Are you a technical or fundamental trader? Are you a discretionary or a mechanical trader? Are you looking for short term or long term trades? Are you a position, swing or day trader?
An example of an answer: I am a discretionary trader and my style is very . . . (aggressive - which makes me suited to scalping intraday or, alternatively, conservative – which makes me suited to swing trading end of day (E.O.D.)). I understand that I cannot predict the future and I accept that I cannot control the markets. However I can control myself, which I will do by . . . (adhering strictly to my trading plan that is detailed, specific, tested and profitable).
What are your strengths and weaknesses?
You will have to list all your strength and weaknesses in trading and you will have to elaborate on how it will help or hinder you in your trading experience. If you have trouble answering this question, paper / demo trade for sometime and note if you are doing something wrong or right. Do this until a pattern emerges which should reveal to you your strength and weakness.
An example of an answer: My primary strength is . . . (allowing my profits to run and closing trades in accordance with my exit strategy. This contributes to ‘my edge’ and helps me towards my goal of being consistently profitable in the markets). My secondary strength is . . .
My primary weakness is . . . (wanting to recoup a loss quickly which, almost inevitably, results in increased losses). The following aspect of my trading plan will help to control this weakness and prevent losses from spiralling out of control . . . (I have a pre-defined daily stop. If it is hit, I stop trading
for the day). My secondary weakness is . . .
Are you in the right frame of mind to trade?
Like it was mentioned before, your mindset is the key in trading successfully. Ask yourself, have you slept well, are you fit, healthy and mentally alert, are u calm and relaxed or tired and distracted my things happening around you?
An example of an answer: I will only trade on days when . . . (I am rested, relaxed and not distracted by work or family etc. I will be guided by my trading plan and I will adhere to it rigidly. It will help to prevent me from making trades that are poorly conceived and executed; i.e. trades that are based on gut feeling and motivated by fear and/or greed).
I will not trade on days when . . . (I am feeling off colour, hung over, particularly tired or when
I am mentally distracted by other events in my life).
What kind of income are you looking at or hoping to get?
We all want to make money in trading, that's a given. It is important to know what kind of income you are looking at? But there's a catch, if you have a 10k account, don't expect to make it into a 100k account in a month. Be realistic. Only by testing the systems will you have an idea of what kind of income you are looking at. Don't wish for the sky because it could crash on your head.
An example of an answer: My financial targets are . . . (to achieve a return of X% per year, which equates to an annual income of $______ without the drawdown on my account exceeding a maximum of Y%. This equates to an average monthly income of $_____, an average weekly income of $____ and an average daily income of $___. Therefore, I have a daily target of Z% of my total equity).
I think I will stop here for today and get back to trading. The next part will setting trading goals. A trading plan takes time to make, but to be frank with you, the trading plan has saved me from loosing my head many times and it's worth the effort to create one. The trading plan will have everything, your whole thought process, and these questions and answers should be in the trading plan, it helps to create a foundation where you know who you are.
TO BE IN THE SAME LEGUE AS THE BEST TRADERS IN THE WORLD
TO BE IN THE SAME LEGUE AS THE BEST TRADERS IN THE WORLD
“We are what we repeatedly do. Excellence therefore is not an act but a habit.” Aristotle
How does one become a great successful trader? How does one be in the same league as the great traders?
When I started my trading career, I wanted to become the best trader in the world. While learning trading, both technical and fundamental analysis, one of my broker friends told me that about 95% of traders who start trading lose money in the end, blow their account.
This really got me thinking about how I should go about learning the art of trading. Think about it, most people will say that you need to become a 'guru' in technical analysis and or most people will say that you need to become a 'guru' at fundamental analysis to become successful at trading, but here's the kicker, most people fail.
What is needed then to become successful in a place where so many great men have failed. I then turned my attention and my learning efforts to learn from the remaining 5% of the traders. Just as I focused my attention to learn from the greats, the 5%, I was waiting for a flight to Australia, I went into a book store looking for something read and came across a great book, “Winning Investment Habits of Warren Buffett & George Soros” by Mark Tier. This book propelled my mind to search what the pros did to become better than the rest of the other mortals to achieve godlike status.
No doubt the pros know what is needed to trade (eg. Technical and Fundamental analysis), then what makes them different from the rest? The answer, in my humble opinion, is in the quote and book title above, it's in their habits. The definition of habit in the dictionary is “an acquired behavior pattern regularly followed until it has become almost involuntary ”. To me this boils down to the following of the trading plan.
A trading plan is more than a trading system, is a lifestyle, a trading lifestyle. I take trading very seriously and I will do whatever it take to get ahead. A trading plan is more than just telling you when to buy or sell or where to place your stop loss (risk). It will tell you when to wake up, sleep, watch tv, eat, exercise, got to and from the office, when and what to trade, just to name a few example.
I have traded with good traders and learned from the best and all of them have something in common, a trading plan. Whether we realize it or not, we have all have systems / plans for everything in our lives; from bathing to tying your shoe lace to wearing your clothes. If you observe / realize how you take a shower you will know what I am talking about. Some people start with the head first then move down. Others start with the legs then arms then body; the list of different ways goes on, everyone has a different way.
Think about it, our life is full of systems, trading is also like that. After years of trading, I realize that it's all about following the trading plan to the letter and executing the plan is more important that the outcome of the trade. Thinking about where the market is going to go is what most newbies do when they start the trading journey, but they don't realize that this is a futile exercise and the pros don't really care where the market is going, they only care about following the trading plan to the letter.
I will be starting a series about creating a trading plan as time will permit. To build a trading plan is much harder that most people think; it's more than a system, it has several key components.
“We are what we repeatedly do. Excellence therefore is not an act but a habit.” Aristotle
How does one become a great successful trader? How does one be in the same league as the great traders?
When I started my trading career, I wanted to become the best trader in the world. While learning trading, both technical and fundamental analysis, one of my broker friends told me that about 95% of traders who start trading lose money in the end, blow their account.
This really got me thinking about how I should go about learning the art of trading. Think about it, most people will say that you need to become a 'guru' in technical analysis and or most people will say that you need to become a 'guru' at fundamental analysis to become successful at trading, but here's the kicker, most people fail.
What is needed then to become successful in a place where so many great men have failed. I then turned my attention and my learning efforts to learn from the remaining 5% of the traders. Just as I focused my attention to learn from the greats, the 5%, I was waiting for a flight to Australia, I went into a book store looking for something read and came across a great book, “Winning Investment Habits of Warren Buffett & George Soros” by Mark Tier. This book propelled my mind to search what the pros did to become better than the rest of the other mortals to achieve godlike status.
No doubt the pros know what is needed to trade (eg. Technical and Fundamental analysis), then what makes them different from the rest? The answer, in my humble opinion, is in the quote and book title above, it's in their habits. The definition of habit in the dictionary is “an acquired behavior pattern regularly followed until it has become almost involuntary ”. To me this boils down to the following of the trading plan.
A trading plan is more than a trading system, is a lifestyle, a trading lifestyle. I take trading very seriously and I will do whatever it take to get ahead. A trading plan is more than just telling you when to buy or sell or where to place your stop loss (risk). It will tell you when to wake up, sleep, watch tv, eat, exercise, got to and from the office, when and what to trade, just to name a few example.
I have traded with good traders and learned from the best and all of them have something in common, a trading plan. Whether we realize it or not, we have all have systems / plans for everything in our lives; from bathing to tying your shoe lace to wearing your clothes. If you observe / realize how you take a shower you will know what I am talking about. Some people start with the head first then move down. Others start with the legs then arms then body; the list of different ways goes on, everyone has a different way.
Think about it, our life is full of systems, trading is also like that. After years of trading, I realize that it's all about following the trading plan to the letter and executing the plan is more important that the outcome of the trade. Thinking about where the market is going to go is what most newbies do when they start the trading journey, but they don't realize that this is a futile exercise and the pros don't really care where the market is going, they only care about following the trading plan to the letter.
I will be starting a series about creating a trading plan as time will permit. To build a trading plan is much harder that most people think; it's more than a system, it has several key components.
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