My Trading Plan

Those who fail to plan, plan to fail.

My trading plan comprises 3 major elements:

1.   Personal Psychological Management
2.   Risk and Capital Management
3.   Price Action Analysis and Strategy

I believe the first two parts are more important than the third - i.e managing your own emotions and biases, whilst measuring the risk and allocating capital is more important than the nuts and bolts of trading.

Other elements of the plan include: Main Concepts, Contingency Planning, Recording and Review System, and an Activity Schedule.

Main Concepts

• Trade only a handful of securities so you can focus all your energy
  
• Watch this list extremely closely - become intimate with their movement and rhythms.
  
• Revolve and employ capital at all times to get greatest annualised compound return
  
• Trade directional (long/short) and time (sideways) and volatility (ranging/sideways)
  
• Choose from a variety of tools (strategies and vehicles)
  
• Trade different/overlapping time periods as required
  
• Start analysis from a long time frame to gauge “stance” of short term conditions
  

Personal Psychological Management
Trading is a business, but its application is determined by personal psychology - how a trader deals with the market, himself, his own doubts worries and other emotions. Personal psychological management is critical to succeed as a trader.
Trading is a business, but its application is determined by personal psychology - how a trader deals with the market, himself, his own doubts worries and other emotions. Personal psychological management is critical to succeed as a trader.

Weaknesses/Temperament
What are your weaknesses? e.g do you proscratinate, are you afraid to pull the trigger, are you susceptible to swings in mood? List these down and then conceive of our you might eliminate or mitigate them as much as possible

Skills and Abilities
Conversely, what are your innate skills and how can you use them to your advantage?

Focus and Consistency
Trading is much like learning to play the piano. Your skill levels will determine what 'pieces' are right for you to play. Key to this is having discipline, by developing and sticking to a routine (Activity Schedule). Further, its better to work smarter, not longer - there is no need to be in front of a computer all day. Just like mastering the piano, it takes consistency of effort, practice and discipline to become profiecient at trading. Always think about the long road and focus your efforts.

Noise and Expert Filter

• Forget about and don't listen to the gurus, pundits and experts in suits
• Use your own intelligence and opinions to achieve your results
• You cannot blame the experts for getting it wrong, just yourself
• Most importantly - news is noise. Ignore the mainstream press and forget about trying to "jump the market"

Accept Losses and Profits
You cannot avoid a loss. Losses are a normal part of doing business. A loss is not a failure or the result of an incorrect decision: it is mainly due to luck and that the balance of probabilities was not in your favour.

Lose Control
Finally, you muse lose control. You cannot control the marketplace, only yourself. You cannot know, with any certainty, what way the market will go or behave. Abandon the notion that you need to control or dictate what the market will do - trade on the side of probability and accept you may be wrong.




Risk and Capital Management
My Risk and Capital Management system comprises:

• 3 Key Principles which bind the system together,
• a set of General Measures e.g. position size, risk/reward ratio, stop loss rules
• a set of Specific Measures dependant upon strategy employed, e.g stop loss specifics, time stops, profit protection, instrument and event risk.
• Other Measures, e.g protecting against power failure, what do I when sick/unable to get to work
• Account Management, e.g what funds go where, how do I allocate windfall profits, etc.

My 3 key principles, which must not be violated, are:
Risk Exposure Principle: Equity at risk must not exceed 2% on any one trade. This must include provision for slippage (wide in the case of options), commission and brokerage.

Drawdown Limit Principle: If equity (measured by NTA) falls by more than 10% in a calendar month, stop trading and conduct a system wide review.

Profit Taking Principle: profits must be taken in accordance with the minimum money management model and current market conditions