TRADING PLAN

Objective:  

To become a consistent, confident trader by following my rules and trading plan

RULES:

PLAN THE TRADE, TRADE THE PLAN

Choose only the best setups.  $300 Loss Limit on any given trade.  Position size accordingly.  Know my risk, manage my risk, and accept my risk.  Predetermine profit taking levels based on support/resistance, Bollinger Bands, MAs, and other key levels.  There is no hesitation executing my trade wheN my entry materializes.  NEVER deviate from the plan.

STOPS

Stops are placed to protect me from my emotions.  Accept that the trade is not working, accept the risk, and exit the trade.  Stops will never be moved lower.  Stops can only be moved up.  Once my stop is breached, exit the trade, without exception.  I can always reenter the trade once the setup appears.

POSITION SIZE

Position size is based on risk.  If the trade requires a risk of $1, than my maximum position size is 300 shares (Loss limit $300/$1 risk = 300 shares).  Position sizes can never exceed my risk.

DON'T LOOK BACK

If I miss a trade, don't chase it.  The market will present another trade shortly. If my profit target is hit, be happy with my gains.  It's OK if my stop is hit, and the stock reverses in my original direction.  Move on to the next opportunity.

REVIEW MY TRADES

Review and post each trade.  Examine the setups, execution, levels.  What can I do better next time?  Did I execute my plan?  Did I deviate from my plan?  Did I control my emotions?

EQUITY CURVE

Keep track of my daily and monthly equity curves.  My equity curve should be consistently rising, with the occasional small drawdown.

2011 GOAL

TRADING GOAL:

1.  Trade with discipline

2.  Trade according to my plan.  Become consistent

3.  Focus on trading, not the $$$$

ACCOUNT GOAL:

I want to end up B/E for the year.  At this time, I need to overcome a $5000 drawdown.

POSITION SIZE:

Again, the focus is on sizing positions based on risk.

Full postions size is between $5000 and $10000 / trade

LOSS LIMIT:

$300 / Trade

3 Consecutive losses = Stop trading, re-evaluate

If I suffer a major loss (ie:  overnight downgrade, private offering, ect...) I will not trade that day

POSITIONS:

Maximum of 3 open day trade positions.  Maximum of 4 swing positions.

STYLE:

My predominant style of trading will be day and scalp trading.  I will swing trade ideal setups

In order to be successful as a trader, I must be consistent.  In order to become consistent as a trader, I must:  (Trading In the Zone)

1.  I objectively identify my setups

2.  I predefine the risk of every trade

3.  I completely accept the risk or I am willing to let go of the trade

4.  I act on my setups without hesitation when my entries materialize

5.  I predefine my profit points based on MAs / previous support/resistance and scale out to ensure profit

6.  I continually monitor my susceptibility for making errors

7.  I understand the necessity of these principles of consistent success and will NEVER violate them

Accepting the principle of probability:  (Trading In the Zone)

1.  Anything can happen in the market

2.  I don't need to know what's going to happen next  in order to make money

3.  There is a random distribution of wins and losses for any given edge

4.  An edge is nothing more than an indication of a higher probability for one outcome over another

5.  Every moment in the market is unique

From Trader Stewie and the Art of Trading

YOU NEED TO BE CONSTANTLY WATCHING YOURSELF, your body language, your tone of voice, your attitude and you need to quickly adjust any behavior that's hurting you (over-trading, anger, revenge trading, trading with huge size, etc...)  you need to be your own therapist, mental coach, and motivator.  You need to be hungry to win every day, even if winning means not trading.  You need to be ALWAYS seeking to improve yourself, learning, adjusting your attitude, minimizing your ego, and maximizing your drive to be better than the day before.  Don't worry about the money, when you are trading well the money will find you, trust me.  Take most care of your account when you are losing because the winning trades are waiting just around the corner, but they are waiting for you to adjust yourself first.

Trading Psychology:  The 16 Truths about Great Trading  by:  Dr. Doug Hirschhorn

1.  45-55% (Average winning % of any given trader)

2.  Traders do not mind losing money, they mind losing money doing stupid things

3.  You can lose money on a great trade

4.  Focus on the trade, Not the money$$

5.  Trading is a game of probabilities, not perfection

6.  Trade to make money, not to be right

7.  Nicht Speielen Zum Passz (if it doesn't make sense, don't do it)

8.  The market does not know how much you are up or down, so don't trade that way (think if I had not trade right now, what would I do?)

9.  Learn to endure the pain of your gains

10.  There is no ideal trader personality type

11.  Fear and Fear drive the markets, not fear and greed

12.  Keep it simple:  Up-Down-Sideways

13.  Make sure the size of your bet matches the level of conviction you have in it

14.  Making money is easy, keeping it is hard

15.  H+W+P=E (Hoping + Wishing + Praying = Exit the trade)

16.  Trading is not like sports

SOME LATE NIGHT TRADING WISDOM (YOUNG GUNS Trader)

• A person with good self-discipline but a poor trading method will outperform a person with poor self-discipline and the best trading method
• Make sure your trading goals are 1. Realistic 2. Attainable 3. Measurable.  If they don't meet these criteria, then the goal is nothing
• Losing trades don't diminish you as a person.  You're also not your winning trades.  They are just by-products of the business you're in
• Just because the market gave you X amount has nothing to do with whether it'll continue in your direction.  Time hath no bearing on money
• Being an active loser is the only way to win.  Actively cutting losers prevents damaging, large, and unmanageable losses
• Holding onto losers is like keeping cancer.  Remain flexible and admit wrongness to protect your existing capital
• The self-image controls everything we do in life.  It is what we believe to be true about ourselves.  Do you deserve to make money?
• You don't have to trade everyday
• After 3 consecutive losses, it's about time to stop trading.  Don't fall into the trading death spiral
• Act in your best interest - placing a trade because you're afraid of missing out on a big move is NOT acting in your best interest
• Flawless execution comes from forming a habit.  A habit is formed when it is repeated over and over
• Don't let personal/external factors affect the trading.  Let the market show you what to do.
• In trading, protecting yourself and acting in your best interest is much more important than taking a chance.  Can't stress that enough
• 7 characteristics of objectivity:  1.  No pressure  2.  No fear  3.  No sense of rejection  4. No right or wrong  5.  Let the market show you  6.  Observe from the perspective of not having a position  7.  Not focused on money
• Let go of the fear of being wrong.  I'm wrong all the time and I accept it.  To improve yourself, you must be honest with yourself
• One of the biggest mistakes is doing something wrong, but making money, and continuing to do the wrong thing because "it worked" 
• The way I look at it is you can keep hoping for something to happen OR free up your capital for the next big opportunity.  Your call$$

DAY TRADE SETUPS

EARNING GAPS

• These trades are based on earnings announcements or significant news
• Look for stocks that are gapping up or down in pre-market with > 10000 shares traded (the more volume, the better chance of continuation)
• Prioritize stock gaps by where they are on the daily chart (gapping above important support/resistance levels, MAs, new highs)
• Let the trade develop (usually a pullback after initial up move)
• Enter on break of High of Day, Stop at break of Low of Day

BREAKOUTS

• Look for pre-market movers gapping above their previous day's high, with high volume (the more volume the better)
• Look for gaps above major resistance levels, MAs, new highs
• PRIORITY goes to KICKERS (gap up after a red candle day, gap down after a green candle day - gap must be completely outside previous day's range)
• At the open, give the trade time to form a pattern.   Enter on break of HOD on increasing volume.  Stop at break of LOD
• Based on high probability chart patterns found on the daily chart (high and tight, flag, symmetrical triangles, break of descending trendline)

SECONDARY BREAKOUTS

• Usually occur in the afternoon after a morning breakout and pull back.  Enter on break of HOD, or on break out of pattern (triangle, tightening consolidation, trendline)

BREAKDOWN

• Enter on break of LOD
• Probability of continuation increases if the general market is down, break of important support/resistance levels, break of whole numbers
• Stop just above previous LOW

BULLISH KICKER

TRIANGLE / WEDGE

• Pattern Breakout
• Look for tightening consolidation with increasing volume to push price through trend line
• Entry on break of trend line, Stop just below trend line 

SWING TRADE SETUPS

BREAKOUTS

• Long trades based on high probability chart patterns found on daily charts.  Highest probability setups are:  High and Tight flag, flag, symmetrical triangle, ascending triangle, descending triangle, descending wedge
• Looking for a strong and clear level of resistance.  Even better if the level of resistance has been hit many times (double, triple tops) and not breached
• Looking for decreasing volume in consolidation zone
• Narrowing Bollinger Bands, Doji strings signify tightening consolidation and IMMINENT move
• Identify stop price (flag low, MA, trend line, ect...) and place stop below (never use round numbers $10.00).  Range should not be greater than 1%-3%.
• Identify profit targets to scale out at previous resistance levels, MAs, BBs, previous highs
• Aggressive Entry is in the Flag (1/2 position, full position on confirmation of breakout). Conservative entry on break out of flag

HIGH & TIGHT FLAG

 

BREAK OF FLAG ENTRY / BREAK OF DESCENDING TRIANGLE

DESCENDING WEDGE ENTRY / BREAK OF HIGH ENTRY

BREAKDOWNS

• Market ideally in a strong downtrend (ie: 20 day below 50 day, below 100 day, below 200 day)
• Look for high probability chart patterns:  descending triangle, ascending wedge, symmetrical triangle, lower highs
• The key is a strong level of support.  Probability increases if level has not been breached
• Identify a stop above a significant level of resistance, or under a moving average
• Identify profit targets to scale out above previous resistance levels, MAs, BBs
• Buy on break of support level.  DO NOT BUY IN ANTICIPATION

****charts and diagram from John Lee, Charts Gone Wild