Trading plan to be in the same league 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.

Hi Andrewnair.

I don't post much. I listen and (try) to learn. So, I am looking forward to hearing what you have to say. Please teach me more.

Porky

"...and the pros don't really care where the market is going, they only care about following the trading plan to the letter..."

i think every speculator care about where the market is going if they are betting on a direction

remember there is a difference between a trading plan and a trading plan...

the difference is experience, screen time, market reading knowledge, call it whatever you like...

when you call it a habit, are you proposing something new here ? Anything you do day in and day out can be called a habit (you said it yourself!!)

Also, no single book will make you a true trader..it'll just amaze you for a short period till it fades...later on when you are more experienced you'll start to be more sceptical about what's written in the books...they aren't real gold, you know...

The books are published for several reasons unknown to you...the writer is a totally different person than you and things that work for him might not work for you.

Trading can ONLY be a habit if YOU make it that way...there's no point of doing things with a "dick half hard"

PS. "I will be starting a series about creating a trading plan as time will permit" ...don't rush into things...i said before that there is a difference between a trading plan and a trading plan...if you lack the experience you will create a "false trading plan" so to speak...

CREATING A TRADING PLAN PART 1


What is a trading plan?


A trading plan is a document that governs everything in a traders life. A trading plan by itself will not make a trader successful, but it will increase the odds in favor of the trader. It will force the trader to engage the market in a organized and methodical way. Most new traders do not have a trading plan and they end up trading by feeling, gut instinct or in a haphazard manner, in doing so will jeopardize the account. At the heart of a good trading plan is the money management rules that minimize the losses that will incur so that the trader can last longer in the game then those traders who do not have a trading plan.


With a trading plan, a trader can have a good idea on his performance and can make interventions if he feels that there is something wrong. There's an old Chinese saying “When you die, you need to know why you died”. With a trading plan you will know if your trading systems are not making money. Some traders don't have a clue that their systems are not performing and continue to make huge losses thinking it's a draw down and not that their systems are lousy.


This quote sums up why a trading plan is vital. “While a plan cannot predict the future, it can lay down how you react to the possible outcomes. This is why a plan is essential. It is a list of strategic responses to events beyond your control. You control the only thing you can control – yourself” Alpesh B. Patel.


Some people have told me that a trading plan is the same as a trading system, but in actual fact a system is a part, a small part, of a trading plan. A trading plan is a holistic approach to trading, a trading lifestyle that governors every aspect of a traders experience. While a trading system will just tell a trader when to enter and exit the markets. In the overall picture, a trading system makes up only about 20% of the whole trading plan. When I share with people about a trading plan, I tell them that a system must be a part of a trading plan, but a trading plan can have any system. In my case I have a few systems running in my trading plan.


A trading plan has several different parts or components. These parts can be interchanged with other parts from different traders. Let me give you an example, Let say you and I have our own trading plan and when I look at your trading plan I like your money management rules. I can actually take my money management rules and replace it with yours without changing the other parts of my trading plan and the trading plan should be able to work.


I have been asked this question, who needs a trading plan? In my humble opinion, everyone that trades / engages the market needs a trading plan. “If you fail to plan, you plan to fail”. Before trading I was running several businesses . Before starting a new business, I always made a business plan, this plan guides me in the business. A trading plan is the same thing, it will guide a trader so he does not get lost and become prey for the other traders.


A trading plan will make trading easier, it will stop you from “thinking” about where the market will go and all you have to do is to execute the plan. In trading all “thinking” should be done outside of the market, during the weekend or your off day from trading. “Thinking” should not be done when your “in” the market. When you are “in” the market, you should be just doing (following the trading plan), not thinking.


It will also make it easier for you to keep account your progress and it will let you know if you have gone off track and how to get back on and it will also keep you discipline, thus keeping your emotions in check so you would make hasty decisions.


I hope to go thru everything I know on how to make a trading plan so that new traders can start making one. To me a trading plan, a good trading plan, is the Grail in trading. When you look at the pros, you will realize that the outcome of the trade is not important, following the trading plan to the letter is the most important thing.

Hey man, thanks for the reply. What I mean when I said that the pros don't care about direction is that they can't control direction, they can only control themselves, as in simple English, how they engage the market. Give you an example, to give you a clearer picture, let say on CNBC, the int rate statement is going to be released, they will normally have people giving their views. One will say the market will go up the other will say it will go down. They have relatively the same education and the same experience, so who's right?

Trying to predict where the market is going is like predicting the weather. The weather man gets it wrong sometimes.

What do you mean by “remember there is a difference between a trading plan and a trading plan...”

Habit, something new? No man, what I mean in simple English is something that becomes a part of you.

About the book I mentioned, I did not say that if you have read the book you will become a trading superstar, what I mean sir is that one need to understand the mind of the great traders to become a great one himself. In this post, what I am trying to share is that there's more too trading than technical and fundamentals.

I thank you for your comments. I will try to finish what I started as quickly as I can as time permits. I normally trade more than 16 hrs a day trading several markets fx being the main one so time is tight for me. I am sorry if you feel that I am sharing a “false trading plan”, its not my intention to do so. I am not here to impress anyone, I just feel that I should give back something when others gave to me for free when I was starting out.

Hey porky,

I hope you would take something good out of this. The trading plan has helped me alot, esp in the early part of my trading exprience.

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.

thanks for your replies...

i see you are very serious about trading (16h a day ?? wow !)...that's obsession...and in a good way IMO.

you'll definitely get the hang of it !

take care.

Interesting topic. I would like to read part 3.

Well, Excellent Thread i must add.

As a newbie myself, i have developed a trading plan before i even started. It is the most important part i must confirm. However what I think keeps me proactive and my mind in top shape is my Training Program that i have that goes together with my Trading plan.
My Training Exercise Plan consist of exercises that teaches me a lot about myself and on top of that i keep my body in peak condition. I train down the gym everyday between 1Hr 30 Mins to 2 Hr, then sauna.
One other thing is having a Trading Journal. Keeping track of all of what you do and WHY you do it as well.

I know its not as relevant to many traders out there , but its brilliant for my well being & state of mind.

PatrickDDM

Thanks, I so sorry for the delay with part 3, been busy with trading and meeting clients, i should have it up and posted by today or so.

Andrew

Hey Patrick,

I agrree with you whole heartly about keeping fit, strong body, strong mind. I am glad you have made a trading plan before starting, not many people I share too about trading do it. By the time they realise that a trading plan is needed, it might be too late, in terms of account size and their emotions.

Good job on the trading journal, it is also a key part in the trading plan. Even fewer people keep a trading journal. There's a chinese saying that goes something like this, "if you die, you want to know why you die". i will try to complete this topic as soon as posible, it will also contain details on my own trading journal.

Thanks for the reply man.

Andrew

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).






I will stop here for now, the next part will be the tools of the trade. Let me know if you need any more information, I hope this information will be useful for you. Best of luck in all your trading.

Andrew. This is just plagiarising Tim Wilcox's trading plan template, which can be found on trade2win.com. What's the point?

Hey man, thanks for the reply, ur right its part of it, but i will be adding more information and taking some stuff out based on his template. I am using his tamplate and have shown traders (my mates) the importance of a trading plan and how to go about making one.

Adding stuff like a trade log and a daily to do list which i call a daily pack and much more.

Andrew.