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Thread: PLAN your trade and TRADE your plan

  1. #1
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    PLAN your trade and TRADE your plan

    Hi, everybody.

    How many times we've been telling this phrase to ourselves? Why really small amount of traders have a trading plan and able to follow it?

    First, let's define what trading plan is.

    It is set of rules that describe your entry, exit and position management technique.

    It's important to distinguish mechanical trading system and discretionary trading plan.

    Mechanical trading system describes setups in very detailed mode, often it looks like "buy when MACD crosses it's medium line after sequence of 3 white candles closing at upper 75% of their range". This detaliization at the first sight simplifies work of a trader, but it offers less flexibility, you can't just adapt your trading system to recent changes in market activity - you should design a new one.

    Trading plan can be less rigid in describing your actions. For example: "Buy after pullback, when price breaks out from the trading range and we've seen signs of big money accumulating before". This describition does not stick your attention to bars, candles or color of indicators. You can be more flexible with your decisions, yet you know the price action you want to capture.

    How to know what plan to trade?

    First of all, it's useful to analyse - what trades can be done over there?:


    1. Breakout momentum trading.

    2. Trading pullbacks on stair-stepping trend

    3. Fading breakouts

    4. Trading sideways market


    There are other trading styles but basically every trade is a variation of one of those trades described above. To be able to consistently follow your trading plan, you should decide - is your trading style for you?

    Every style is absolutely not easy, and your should find that frustration you can live with.


    1. Breakout momentum trading.


    If you like fast markets and don't want to "nurse" bad trades, probably this is for you.
    Your profits will be relatively small (you will take only 20-30% of the whole trend, oh my God).

    Drawback of this style - leaving some money on the table, benefit - perfect timing of the trade. In most cases you will know pretty fast whether you have winning trade or not. Also, in most cases you can at least cover your risk when you are wrong.

    To trade this way, you should have a lot of patience and ability to pull the trigger when moment comes.



    2. Trading pullbacks on stair-stepping trend


    The obvious benefit of this trading style - maximized profit because you get good, often best prices that market can provide. Best winning trades can look very attractive - bought low, sold high.

    Drawback - you go against the market, you can be wrong about how deep correction is or is it a correction at all. You should be ready for some frustrating situations when market takes your stop and finally goes in your favor.
    For example in momentum breakout trading you can close your bad trades to breakeven in 80% cases. When you try to trade pullback, you may be stopped out quickly and several times in a row.



    3. Fading breakouts


    Same drawbacks and benefits like in pullbacks trading. You go against the market, you may be wrong very quickly but you can get very quick nice profits. Also you should have very good timing for your trades.



    4. Trading sideways market


    Sideways markets are often dull enough, but some traders like this slow tempo.

    Benefits: you can have enough time to enter a trade, you might not sit neat the monitor, most of the time you can use limit orders in "set and forget" mode.

    Drawbacks are wide stops, slow tempo (you don't know whether you are right ot not quickly).


    So, you should decide what trading style matches your personality.

    Of course, there can be sort of combination of one and another, but think about your "A-class trades". What do you expect it to be?


    Good luck!

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    Last edited by Value trader; 08-07-2013 at 10:10 PM.

  2. #2431
    Trader J_C_Anderson's Avatar
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    Each trader should have detailed trading plan. "Failing to have a plan is a plan to fail" - the professionals say. Properly developed trading plan should cover all steps of trading process from choosing the entry point to closing the positions. As usual, trading plan includes the following elements:
    - requirements on time of the day and trading session,
    - criteria used to choose the particular instruments to trade,
    - setups you are looking for and entry point,
    - risk management rules, including the way to calculcate the position size and to define stop level,
    - position management rules, covering such issues as adding more on pullbacks or covering the position partially,
    - reasons to exit trade with profit (based on technical setups and profit potential).

    In fact all this is not so complicated as might seems from the first sight. All elements of the trading plan should be based on strategy rules. At the same time, strategy rules should be created in accordance with backtesting results. Testing strategy on historical ata is important to define proper values for each element - for example, to find an optimal stop width or profit potential. Nowadays it is quite easy with the help of special software like Forex Tester that allows to make dozens of simulated trades just in a few minutes. Backtesting is the best approach to get detailed information in the performance of the strategy. Such results would be more accurate than ones obtained through demo testing since backtesting is fully automated and thus it totally excludes the impact of trader`s psychology.

    It is also necessary to mention that trading plan should be prepared before entenring the position to avoid the influence of fear or greed appearing while being in the position. It happens because trader becomes biased if he has position in either direction and unintentionally tryies to find arguments confirming that his optinion is still valid.

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  3. #2432
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    Trading with emotional involvement will always get in the way of trading one's trading plan. Because when you trade with emotion you will most likely be aggressive and sentimental towards the market and this are traps that once a trader fall into, losing your entire trading account is just a step away. So its best to shun emotions and focus on trading once plan.Most of the time we trade the market with a lot of emotional feelings and never rely upon any trading plan and this is one of the reason we often lose money to the market because we never plan very well . it takes a lot of discipline for any trader to have a trading plan and to trade such plan without allowing our emotion to stand in the way of our plan.

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  4. #2433
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    The strategy shows good but my brother's simplicity is better and the kalaski analysis based on support and resistance is the best way to choose a 4-hour time frame you choose a summit to sell and wait for access to the supposed support important that the margin bears any reflection and the lot is compatible with the balance.
    it is the best and easiest way to sell at the top and buy when support

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