Trading Plan, Rules and Conditions to Enter a Trade

Hi there FF members,

i have quite recently embarked on this journey of getting to know the forex, cfd and commodities market (gold and oil so far) anyway according to my reading, i need to create a trading plan, a set of questions to answer before entering as well asa set of rules to follow. so basically i'm looking for any feed back on what i have come up with so far.

so far my biggest weakness is interfering with winning trades. so my hope is having a firm set of rules and procedures in place will help me leave things alone, at least to stop taking profit early and only letting the losers get stopped out.



Rules to Enter a Trade and Questions to Answer Before I Enter

1. What is the over all,big trend? (always check larger time frames for the big trend)

2. Do I have a signal, i.e. entering pattern, at an order flow area with a confirming candle set up?

3. What price will I enter the trade at?

4. what is my stop loss, why?

5. what is my profit target and why?

6. what is my total risk to reward? is it at least 1 to 1 or more?

7. which entering pattern am i using to confirm the trade

8. what candle stick formation additionally confirmed the trade for me?

9. does the trade respect the order flow zones?

10: check currency strength readings additional confirmation

11. check the volume to see what is backing the move

12. once trade respecting all the above is set, don't touch it, unless something has happened to invalidate my analyses

13. if the set up you expected happens don't hesitate, enter 2 positions so you can take profit at 1/1 with 1 position, let the second position go to TP 2 or even stay in long term if there is a major trend.

14. move stop loss to break even and then to profit as soon as is safe without risking the trade



Theo's Patsios questions to answer before entering a trade:

What needs to happen for you to enter a trade?
Why would you consider buying or selling in a particular price area?
What would be sufficient evidence that you are not alone?
When will you pull the trigger?
How you will handle the risk:reward element?
Where will you put your stop loss and why?
What will your take profit be and why?
What is the minimum risk:reward ratio you will accept?
How will you manage the actual trade once you are in?
When will you move your stop loss to break even?
Are there any situations that may warrant moving to break even sooner?
Will you use a trailing stop and how?
What will your lot size and account management be like?
What percentage of your account will you risk on each trade?
Will you consider some trades more probable than others and risk more?
Will you consider some trades less likely than others and risk less?

edited to add: updated the list with member feedback

You've got a lot to be thinking about there. Just like driving, when you first start, there seems like an impossible number of things to manage at any one time. You do need to be aware of quite a few things when entering a trade, but these should already be programmed into your thoughts, and you should be clear exactly what you are waiting for the market to do. Keep things as simple as possible. Know where and when to enter - know where your stop should go - and know where the levels of support and resistance are for both entries and exits. Over analysing can be death to a trader. A methodology is really important, but don't make it too rigid, because the market isn't like that.

cheers for the feed back, makes sense, the plan has to be simple enough that you can implement it in practice too.

12. once trade respecting all the above is set, don't touch it, unless something has changed the situation fundamentally.

If you are trading the long term trend and using technicals to enter your trade, I would advise trying to minimize the fundamental influence on your trades. If you dont know enough about fundamental analysis, any piece of news might cause you to make a rash decision. I find using a trailing stop wide enough to absorb daily market volatility keeps me disciplined. 2D*ATR works for me when setting my trade initially. Obviously, if there is massive news like we've had over the last couple of weeks, you'll be wiped out anyway.

Just my thoughts...when you develop your own strategy, it will all fall into place.

Best of luck WeeMee,
Bullbear

everyone should be able to answer these questions (good questions btw) so here goes, hope this helps, these are answers to the bottom set of questions on your post:

1 strong trend and pullback is ideal.
2 pullback to s/r/ bounce off s/r, then I know I am in the supply/demand flow
3 price action signals
4 when price confirms that it is moving in the direction I expect/anticipate
5 at 1:1 r/r I will take half position off so I no longer have risk (free trade)
6 above/below last swing high/low or behind strong s/r so my stop is protected by s/r
7 t/p is discretionary. If the trade isn't working for days. I may take it off, or it it struggles to move beyond a s/r level for too long. Otherwise I aim to leave all or part of a position on for as long as I can
8 I take what the market gives, but I put myself in a position to ride trends for as long as possible
9 as the trade develops, I will look to move my stop above / below major swings in the trend.
10 unless the trade has developed, I don't move my stop as it is normally at b/e due to profit taking at 1:1 rr. Occasionally I get hit for a full stop loss, shit happens, but I may choose to hedge the loss out. I used to hedge losers out a lot, but these days not so much as my approach is profitable enough not to worry, and it means more risk.
11 as above
12 trailing stops are too precise and don't really fit with how I trade
13 I prefer to risk only 0.5%, but never any more than 1% ever.
14 first I have an idea how much money I want to risk, then I decide on lot size/pip value based on stop loss - i.e if I am willing to risk $100 then $1 per pip for 100 pip stop or $2 per pip for 50 pip stop. Depends on distance of good stop area from where I get in.
15 & 16 some trades are more probable. If I have many ticks on my trade requirements list (does the trade meet xyz requirements) then I am comfortable risking 1%

this seems a conservative approach, but when you realise I am finding the safest way but best chance to (wide stop maintained at no risk) to follow a trend and build into a trend and stay in a trend it will make a lot more sense. I love trends, something is always trending, so there are always opportunities for me to build positions on trends. I try to have my cake and eat it with risks and rewards, but the result is I end up eating a lot of cake ��

thanks for this, great post and very helpful for me to do. Unless you have a strategy and can answer all of these questions, I think you are probably just hitting and hoping. All that brings is pain (been there, done that). The turtle trader guy said something along the lines of 'don't worry about where price is going, worry about what you are going to do when it gets there'. So true...

Edit: before I forget - because I use a simple but disciplined approach, and have a plan, I can spend less time staring at charts and wondering 'how I'm gonna make money reading this dang chart', and more time reading and researching and finding out what fundamentals are likely to create a trend in a currency pair.

As for s/r, I have a little bit of a 'secret' on that one (there's always a secret, but mine isn't a very impressive secret, lol) - when I look to s/r I try and find the round number that is being contended, not an exact s/r. So for example, you might join a number of candle tops or bottoms together and have an s/r line at 1.2022, but its more than likely the price being contended is actually 1.2000, so watch what happens at this level instead. If you draw s/r at the round number, you will see price battling around that number. For me this is just more informative and reliable. And humans do love round numbers!

Also, I only ever use horizontal s/r lines, diagonal lines are misleading and often blind you to what is happening with price action (feel free to use them as a guide, but don't trade using them, use horizontal lines and you will understand better what price is doing).

thank you very much for the thoughtful feed back, for now i have to increase my knowledge and keep practicing with my basic plan, hard part is to not trade when there is no set up fitting my know how and plan. i am learning not to close profitable trades quite so early anymore lol.


very interesting reply, i really appreciate it. i'm a bit surprised you don't trade trend lines? does that mean no break outs of pendants or triangles? i love your take on the support and resistance lines and watching the round numbers near by, it makes a lot of sense.

i see a common theme is also to put 2 positions on at once so you can close 1 of them at 1:1 r/r, my present brokers smallest positions make it hard for me to do that without putting 4% of my account at risk, unless i have an opportunity with very tight stops. but i see this tactic as a great way to allow one to leave things running with the trend for longer. also love the moving stop loss to lock in profit when you can without risking the whole trade. it's funny the more i think now i've got it, the more i realize that there is more to learn the ever lol.

thanks and all the best

WM

Glad it's of some use to you. Just a couple of thoughts for you -

Putting two trades on at the level at the same time is just paying your broker twice and can be confusing when starting out. Your job is to keep it simple. Diagonal lines, rising wedges etc are great to anticipate moves, but you end up trading the shape rather than what price is doing in relation to itself and then, like indicators, your attention is on some secondary thing rather than price itself. I don't tend to trade breakouts as if you break out of a particular range, the move is potentially going straight into resistance. Better to have a confirmation in a direction and use the pullback. I like the market to tell me what it is doing. If there is no pullback, so what? I don't need to try and grab every move and every pip. 'Fear of missing out' is a major account killer. I'm trying to catch trends so I don't need to be pulling so many stunts or trick shot trades, I just need to enter a trend in a sensible way. Then let the trend play out. Boring, slow and conservative, but it gets the job done with little fuss.

Go back and look at the trend up in the euro. All the way up to 1.40, nice trend line, new higher lows bouncing at previous higher highs or obvious round numbers. Build a position by entering on pullbacks and wait. Move stops when appropriate. Relax. If you start your first trade small, risk say 0.5% and the trend doesn't develop, so what? But if it does develop, or continues, you can end up having 20% or so of your account working for you by building a position. 20%, all risk free in a trend and all you have to do is manage forward stops. And if the market turns round you get stop for a profit? Sound good? It just takes time, patience, and belief in your approach. Get rich sloooooowly, but make sure that you are getting rich.

this is just what i was hopping for, lots of food for thought. i'm really thankful. it's great to hear both pros and cons of multiple positions.

anyway your long term trend point is well taken. makes a lot of sense. trouble is as a beginner i'm always worried that the trend will be at an end by the time i enter it and turn against me, lol. but yeah i can learn. have already made much progress by letting my winners actually make their targets, or at least i let them go close

just wanted to add:

i updated the first list with things i want to include in my plan which you guys kindly provided with your feedback. the idea of splitting the position in 2 is so logical that i have to start implementing it on my demo account. my real account is with a broker that has quite large minimum trade sizes, so if i want to stick to the 1% per trade rule i can not open 2 positions with him. i will probably close that account at some stage and open one with a more competitive broker. at the moment i pay 3 pips to open a trade on eu for example and then when i close it i pay another 3 pips. some times it's even more, so that means i need to make an average of 7 pips on any trade before i can start earning pips myself and it's worse on other pairs. seems crazy, my other demo account with zulutrader was much much tighter spread. now i'm trying forex demo account as they offer autochartist with accounts and i wanted to see it in action. present broker only gives autochartist to platinum accounts with 10k or more, lol. not what you want when you want to learn how to trade profitably. ideally i want to practice with a few bucks per trade, so mistakes are not so costly, but i still have to learn to master my emotions and get the right head state to be profitable.

WeeMee:

Congrats on your research. As you have discovered there are many factors to consider before entering a trade. There are also many opinions on what those should be. I had to learn these lessons through experience in the form of repetition. Unfortunately, the only way I seem to learn is by making mistakes...when it costs me a few hundred/thousand dollars, I tend to remember the mistake and then learn from it.

There is no substitute for experience and unfortunately how much experience is required to approach trading mastery is difficult to assess. I would estimate it will take you at least 2 years to begin to consistently win at this game. Nobody wants to hear that, but it is true and this does not fit the immediate gratification world we currently live in.

As you progress and learn from your mistakes, all the factors you are listing will become second nature to you and less like a check list. The key is to develop a plan and be willing to adapt as the world changes. Keep up the good work.

Greetz Pipster1,

very nice to see you made it to my trade plan thread. you were the one that showed me there was good info out there for free if one was willing to read it.

the point about it taking me 2 years or more to master being profitable consistently, i already accepted that the first time you mentioned it. was a bit pissed off at first at the idea that i wasn't gonna get rich in the next few days or weeks, lol, but the plain logic of it convinced me that it will take some hard work and study to have a chance of seeing if i have a talent for this. i look at this period as a chance to learn as much as possible with low level risk, so that if i do get a hang of it i only have to increase trade size to make things move faster.

Still figuring out my plan. Gotta have rules, know when to enter and exit. Not just jumping in without thinking.