We already have completed more than half of the way through college, this is
one of the most important pieces of advice you should always keep in mind.
Be your own trader.
We can say: Don’t follow someone else’s trading advice blindly! Just because someone may be doing well with their method, it doesn’t mean it will work for you well.
We are going on all in different situations in life, and we all have different market views, thought processes, risk tolerance levels, and different market experiences. You need to have your own personalized FOREX trading plan and update it as you learn from the market.
With rock solid discipline, your trading could look like this.
Whenever you want to develop a trading Plan and sticking to it are the two main ingredients of trading discipline. But trading discipline isn’t enough. Even solid trading discipline isn’t enough.
This has to be rock solid discipline.
We repeat it: rock solid.
Like Zac Efron’s abs.
No to fun, plastic solid discipline will not do. More ever, it will not discipline made from straws and sticks. We cannot want to be little piggies.
All we desire to be successful traders!
With the rock solid trading discipline is the most important characteristic of successful traders.
The trading plan means to predetermine what is supposed to be done, why, when, and how. It covers your trader personality, personal expectations, risk management rules, and trading system(s)
If you followed to, a trading plan will help limit trading mistakes and minimize your losses. After all, “If you fail to plan, then you’ve already planned to fail.”
You can removes any bad decision making in the heat of the moment with a well effective trading plan. We know that your emotions may consume you if money is on the line, which can cause you to make irrational decisions. You don’t like that to happen.
The most effective way to protect it from happening is to minimize (notice we did not say eliminate) thinking by having a plan for every potential market action. With the right FOREX trading plan, every action is spelled out, so that in the heat of the moment you don’t have to make any rash decisions.
You should just simply stick to your trading plan.
A trading system describes how you will enter and exit trades.
A trading system is part of your trading plan but is just one of several important parts, i.e., analysis, executions, risk management, etc.
As market conditions are always changing, a good trader will usually have two or more trading systems in his or her trading plan.
The trading systems will be covered more in-depth later on in the lesson, but we thought that it was important to point out the difference between the two upfront to avoid any confusion.
Be your own trader.
We can say: Don’t follow someone else’s trading advice blindly! Just because someone may be doing well with their method, it doesn’t mean it will work for you well.
We are going on all in different situations in life, and we all have different market views, thought processes, risk tolerance levels, and different market experiences. You need to have your own personalized FOREX trading plan and update it as you learn from the market.
With rock solid discipline, your trading could look like this.
Whenever you want to develop a trading Plan and sticking to it are the two main ingredients of trading discipline. But trading discipline isn’t enough. Even solid trading discipline isn’t enough.
This has to be rock solid discipline.
We repeat it: rock solid.
Like Zac Efron’s abs.
No to fun, plastic solid discipline will not do. More ever, it will not discipline made from straws and sticks. We cannot want to be little piggies.
All we desire to be successful traders!
With the rock solid trading discipline is the most important characteristic of successful traders.
The trading plan means to predetermine what is supposed to be done, why, when, and how. It covers your trader personality, personal expectations, risk management rules, and trading system(s)
If you followed to, a trading plan will help limit trading mistakes and minimize your losses. After all, “If you fail to plan, then you’ve already planned to fail.”
You can removes any bad decision making in the heat of the moment with a well effective trading plan. We know that your emotions may consume you if money is on the line, which can cause you to make irrational decisions. You don’t like that to happen.
The most effective way to protect it from happening is to minimize (notice we did not say eliminate) thinking by having a plan for every potential market action. With the right FOREX trading plan, every action is spelled out, so that in the heat of the moment you don’t have to make any rash decisions.
You should just simply stick to your trading plan.
Developing
a Trading Plan
A trading plan is a written set of rules that defines how and when you will place trades and includes the following components:
Market(s) That Will Be Traded
Today’s traders are not limited to stocks; you have a wide selection of instruments from which to choose, including bonds, commodities, currencies, exchange traded funds, futures, option and the e-minis (such as the e-mini S&P 500 futures contract). In order for trading to be successful, however, any chosen instrument must trade under good liquidity and volatility.
Liquidity describes the ability to execute orders of any size quickly and efficiently without causing a significant change in price. In simple terms, liquidity refers to the ease with which shares (or contracts) can be bought and sold. Liquidity can be measured in terms of:
A trading plan is a written set of rules that defines how and when you will place trades and includes the following components:
Market(s) That Will Be Traded
Today’s traders are not limited to stocks; you have a wide selection of instruments from which to choose, including bonds, commodities, currencies, exchange traded funds, futures, option and the e-minis (such as the e-mini S&P 500 futures contract). In order for trading to be successful, however, any chosen instrument must trade under good liquidity and volatility.
Liquidity describes the ability to execute orders of any size quickly and efficiently without causing a significant change in price. In simple terms, liquidity refers to the ease with which shares (or contracts) can be bought and sold. Liquidity can be measured in terms of:
- Width
– How tight is the bid/ask spread?
- Depth
– How deep is the market (how many orders are resting beyond the best bid
and best offer)?
- Immediacy
– How quickly can a large market order be executed?
- Resiliency
– How long does it take the market to bounce back after a large order is
filled?
Markets
with good liquidity tend to trade with tight bid/ask spreads and with enough
market depth to quickly fill orders. Liquidity is important to traders because
it helps ensure that orders will be:
- Filled
- Filled
with minimal slippage
- Filled
without substantially affecting price
Volatility,
on the other hand, measures the amount and speed at which price moves up and
down in a particular market. When a trading instrument experiences volatility,
it provides opportunities for traders to profit from the change in price. Any
change in price – whether rising prices in an uptrend, or falling prices during
a downtrend – creates an opportunity to profit; it is difficult to make a
profit if price stays the same.
It is important to note that a trading plan developed and tested for the e-minis, for example, will not necessarily perform well when applied to stocks. Separate trading plans may be needed for each instrument or type of instrument (one trading plan, for example, may perform well on a variety of the e-minis). Many traders find it helpful to focus initially on one trading instrument and then add other instruments as trading skills increase.
Primary Chart Interval that Will Be Used to Make Trading Decisions
Chart intervals are often associated with a particular trading style. Chart intervals can be based on time, volume or activity, and the one you choose ultimately comes down to personal preference and what makes the most sense to you. That said, it is common for longer-term traders to look at longer-period charts; conversely, short-term traders typically use intervals with smaller periods. For example, a swing trader may use a 60-minute chart while a scalper may prefer a 144-tick chart.
Keep in mind that price activity is the same no matter what chart you choose, and the various charting intervals provide a different view of the markets. While you may choose to incorporate multiple charting intervals in your trading, your primary charting interval will be used to define the specific trade entry and exit rules.
Indicators and Settings that Will Be Applied to the Chart
Your trading plan must also define any indicators that will be applied to your chart(s). Technical indicators are mathematical calculations based on a trading instrument’s past and current price and/or volume activity. It should be noted that indicators alone do not provide buy and sell signals; you must interpret the signals to find trade entry and exit points that conform to your trading style. Various types of indicators can be used, including those that interpret trend, momentum, volatility and volume.
In addition to specifying technical indicators, your trading plan should also define the settings that will be used. If you plan on using a moving average, for example, your trading plan should specify a “20-day simple moving average” or a “50-day exponential moving average.”
Rules for Position Sizing
Position sizing refers to the dollar value of your trad, and can also be used to define the number of shares or contracts that you will trade. It is very common, for example, for new the trader to start with one e-mini contract. After time and if the system proves successful, the trader may trade more than one contract at a time, thereby increasing potential profits (but also maximizing losses). Certain trading plans may call for additional contracts to be added if a certain profit is achieved. Regardless of your position sizing strategy, the rules should be clearly stated in your trading plan.
Entry Rules
as Frequently, traders are either conservative or aggressive by nature and this often becomes evident in their trade entry rules. Conservative traders may wait for too much confirmation before entering a trade, thereby missing out on valid trading opportunities. Overly aggressive traders, on the other hand, may be too quick to get in the market without much confirmation at all. Trade entry rules can be used by traders who are conservative, aggressive or somewhere in between to provide a consistent and decisive means of getting into the market.
Trade filters and triggers work together to create trade entry rules. Trade filters identify the setup conditions that must be met in order for a trade entry to occur. They can be thought of as the “safety” for the trade trigger; once conditions for the trade filter have been met, the safety is off and the trigger becomes active. A trade trigger is the line in the sand that defines when a trade will be entered. Trade triggers can be based on a number of conditions, from indicator values to the crossing of a price threshold. Here’s an example:
It is important to note that a trading plan developed and tested for the e-minis, for example, will not necessarily perform well when applied to stocks. Separate trading plans may be needed for each instrument or type of instrument (one trading plan, for example, may perform well on a variety of the e-minis). Many traders find it helpful to focus initially on one trading instrument and then add other instruments as trading skills increase.
Primary Chart Interval that Will Be Used to Make Trading Decisions
Chart intervals are often associated with a particular trading style. Chart intervals can be based on time, volume or activity, and the one you choose ultimately comes down to personal preference and what makes the most sense to you. That said, it is common for longer-term traders to look at longer-period charts; conversely, short-term traders typically use intervals with smaller periods. For example, a swing trader may use a 60-minute chart while a scalper may prefer a 144-tick chart.
Keep in mind that price activity is the same no matter what chart you choose, and the various charting intervals provide a different view of the markets. While you may choose to incorporate multiple charting intervals in your trading, your primary charting interval will be used to define the specific trade entry and exit rules.
Indicators and Settings that Will Be Applied to the Chart
Your trading plan must also define any indicators that will be applied to your chart(s). Technical indicators are mathematical calculations based on a trading instrument’s past and current price and/or volume activity. It should be noted that indicators alone do not provide buy and sell signals; you must interpret the signals to find trade entry and exit points that conform to your trading style. Various types of indicators can be used, including those that interpret trend, momentum, volatility and volume.
In addition to specifying technical indicators, your trading plan should also define the settings that will be used. If you plan on using a moving average, for example, your trading plan should specify a “20-day simple moving average” or a “50-day exponential moving average.”
Rules for Position Sizing
Position sizing refers to the dollar value of your trad, and can also be used to define the number of shares or contracts that you will trade. It is very common, for example, for new the trader to start with one e-mini contract. After time and if the system proves successful, the trader may trade more than one contract at a time, thereby increasing potential profits (but also maximizing losses). Certain trading plans may call for additional contracts to be added if a certain profit is achieved. Regardless of your position sizing strategy, the rules should be clearly stated in your trading plan.
Entry Rules
as Frequently, traders are either conservative or aggressive by nature and this often becomes evident in their trade entry rules. Conservative traders may wait for too much confirmation before entering a trade, thereby missing out on valid trading opportunities. Overly aggressive traders, on the other hand, may be too quick to get in the market without much confirmation at all. Trade entry rules can be used by traders who are conservative, aggressive or somewhere in between to provide a consistent and decisive means of getting into the market.
Trade filters and triggers work together to create trade entry rules. Trade filters identify the setup conditions that must be met in order for a trade entry to occur. They can be thought of as the “safety” for the trade trigger; once conditions for the trade filter have been met, the safety is off and the trigger becomes active. A trade trigger is the line in the sand that defines when a trade will be entered. Trade triggers can be based on a number of conditions, from indicator values to the crossing of a price threshold. Here’s an example:
Trade
filters:
- Time
is between 9:30 AM and 3:00 PM EST
- A
price bar on a 5-minute chart has closed above the 20-day simple moving
average
- The
20-day simple moving average is above the 50-day simple moving average
Once
these conditions have been met, we can look for the trade trigger:
- Enter
a long position with a stop limit order set for one tick above the
previous bar’s high
Note
how the trigger specifies the order type that will be used to execute the
trade. Because the order type determines how the trade is executed (and
therefore filled), it is important to understand the proper use of each order
type; the order type should be part of your trading plan. Please review the
“Order Types” section of this tutorial for more information or the Introduction
to Order Types guide
for more in-depth coverage.
Exit Rules
It is often said that you could enter a trade at any price level and make it profitable by exiting at the appropriate time. While this seems overly simplistic, it is quite true. Trade exits are a critical aspect of a trading plan since they ultimately define the success of a trade. As such, your exit rules require the same amount of research and testing as your entry rules.
Exit rules define a variety of trade outcomes and can include:
Exit Rules
It is often said that you could enter a trade at any price level and make it profitable by exiting at the appropriate time. While this seems overly simplistic, it is quite true. Trade exits are a critical aspect of a trading plan since they ultimately define the success of a trade. As such, your exit rules require the same amount of research and testing as your entry rules.
Exit rules define a variety of trade outcomes and can include:
- Profit
targets
- Stop
loss levels
- Trailing
stop levels
- Stop
and reverse strategies
- Time
exits (such as EOD – end of day)
For
trade entry rules, the type of exit orders that you use should be clearly
stated in your trading plan. For example:
- Profit
target: Exit with a limit order set 20 ticks above the entry fill price
- Stop
loss: Exit with a stop order set 10 ticks below the entry fill price
- Note:
The remaining order will have to be canceled to avoid entering an
unintended position
Figure 2
shows a template used for developing a trading plan that includes all of the
important elements:
- Trading
instruments
- Time
frames
- Position
sizing
- Entry
conditions (including filters and triggers)
- Exit
rules (including profit target, stop loss and money management)
|
Figure 2 - A trading plan worksheet template
|
The Difference between Trading Plan and Trading System
To understand in more extend, we need to clarify distinction between a trading plan and a trading system before.A trading system describes how you will enter and exit trades.
A trading system is part of your trading plan but is just one of several important parts, i.e., analysis, executions, risk management, etc.
As market conditions are always changing, a good trader will usually have two or more trading systems in his or her trading plan.
The trading systems will be covered more in-depth later on in the lesson, but we thought that it was important to point out the difference between the two upfront to avoid any confusion.
No comments:
Post a Comment