03 Oct Writing a trading plan — part 3

Writing a trading plan

Part 3

One of the best sources out there for learn­ing any­thing about trad­ing is def­i­nite­ly with­out a doubt; Investo­pe­dia. So many high­ly pro­fes­sion­al con­trib­u­tors and knowl­edge to be found there. That is also where I found this arti­cle on ‘Build­ing the Per­fect Mas­ter Plan’ by Matt Black­man.

So thanks to Matt and thanks Investopedia.

Part of a series

This is the third part of ‘writ­ing a trad­ing plan’. Not sure how many parts it will have because that all depends on how much work each part will take to write. I will con­tin­ue this series until I have a work­ing trad­ing plan that I can be con­sis­tent with. I will men­tion all mis­takes and things that did go well to the best of my abil­i­ty and in all hon­esty. Thanks for tak­ing the time to read it. 

Writ­ing a trad­ing plan. Part 1.

Treat­ing trad­ing like a business.

Writ­ing a trad­ing plan — part 2

DISCLAIMER

Click here for my dis­claimer. It basi­cal­ly says that I am on my path to becom­ing a trad­er and these are just my opin­ions on how to approach learn­ing to trade. Feel free to check it out and com­ment on it.

Here it goes…

Summary so far

In the first part of writ­ing a trad­ing plan I talked about things like skill assess­ment. You first have to learn some basics before you have a bet­ter under­stand­ing on how to make a plan. Then I took a look at ‘men­tal prepa­ra­tion’ and made a mantra for myself. A mantra I will say before I start my trad­ing ses­sion. After­wards, I estab­lished the amount of risk I am will­ing to take. This was pri­mar­i­ly based on my bal­ance chart, take a deep­er look into my bal­ance chart here. At the end of the first part I wrote about my per­son­al goals regard­ing trading. 

In the sec­ond part I wrote about doing your home­work. The things that, in my case, crude oil has cor­re­la­tions too. News to read. Finan­cial instru­ments to watch in order to pre­pare myself for a trad­ing ses­sion. Then I con­clud­ed that because I trade the very small time frames I don’t have to take them into con­sid­er­a­tion that much. 

In this third part I will con­tin­ue fol­low­ing the trad­ing plan out­lined by Matt in his arti­cle on Investo­pe­dia. The remain­der of the items are:

• Trade Prepa­ra­tion
• Set Exit rules
• Set Entry rules (next blog post)
• Keep Excel­lent records (next blog post)
• Per­form a Post-Mortem (next blog post)

So let’s get start­ed with work­ing on the next item which is ‘Trade Preparation’.

Trade Preparation

The author of the arti­cle, Matt, talks about the impor­tance of out­lin­ing the major and minor sup­port and resis­tance lev­els. Set­ting alerts for entry and exit sig­nals. And keep dis­trac­tions away from your trad­ing desk. 

How does this look like for me?

1. On the dai­ly chart I draw a rec­tan­gle cov­er­ing what I con­sid­er to be the sup­port & resis­tance area
2. Then I draw trend sup­port line with the Fibonac­ci chan­nel tool on the dai­ly chart
   1. I draw the sup­port trend line and the Fib. chan­nel tool gives me the Sup­port & Resis­tance lines of the price action above it. Don’t know what the Fib. chan­nel tool is? GOOGLE it.

I like to keep my charts clean because when I draw too many lines it gets real­ly con­fus­ing. Also, just because you noticed a cer­tain line some­where doesn’t mean there’s much of a sig­nif­i­cance to it. So keep it sim­ple. Be patient. Ride the wave.

Getting rid of distractions

For me the biggest dis­trac­tion is the clut­ter on my desk and that’s why I have a rule that every night I will clean my desk. Anoth­er annoy­ance of mine is loud nois­es from out­side. Let me sketch you a pic­ture. I live in an Asian coun­try, next to a tem­ple. So often times they prac­tice and pre­pare for some hol­i­day, which they have a lot of, and it gets noisy quick. Not com­plain­ing about that at all, that is in fact one of the things I like about Asia. How­ev­er, to bat­tle this before I start my trad­ing ses­sion, I lis­ten to music. Read here more on how I get pre­pared mentally.

Set Exit Rules

Accord­ing to the arti­cle most traders con­cen­trate on their buy sig­nals but not on when they should get out. I must agree with this because I was doing great and ‘bet­ting’ in the right direc­tion most of the time. How­ev­er, the los­ing trades I had I wouldn’t close think­ing prices would even­tu­al­ly go back to it and I could close on a prof­it. Some­times this would work, oth­er times not. Because of this I would blow my account and lose it all, let alone the gains.

Adapt and adjust

I believe with every endeav­our you start off by doing one thing. Then you adapt and adjust if it doesn’t work. That’s what is going to hap­pen here for me. When I looked at my bal­ance chart I saw that more than not I would get the direc­tion right. Keep in mind that I don’t have that much of ‘his­tor­i­cal’ data to go by on. But like I said, you take one thing than adapt and adjust. In my case that is as soon as I take a trade, I will put my stop/loss and take prof­it each at ten points/pips. Most don’t agree and say that your ‘take prof­it’ should be twice as big as your stop/loss, and maybe they’re right. But since I make high vol­ume trades I am ‘bet­ting’ on the premise that I make more cor­rect trades than not and thus in the end will make mon­ey. We’ll see how this goes first and if need­ed lat­er, adapts and adjust.

To be continued…

Thank you for read­ing. In the next post I will share with you my entry rules and how I track my trades. Every trad­er needs to keep a trad­ing jour­nal for review lat­er. To learn from mis­takes and so on. Hope to ‘see’ you in the next one.

As always, leave a com­ment if you feel like it. Troll me if you feel like that. Up to you really.