|April 17th, 2012, 10:13 AM||#1 (permalink)|
Futures Experience: Advanced
Platform: CQG;Genesis Trade Navigator
Broker/Data: RJ O'Brien
Favorite Futures: Futures
Posts: 15 since Apr 2012
Thanks: 0 given, 10 received
Keep it simple Sweet
As progress was made in writing it down, I realized that the years of trading commodities have shaped my way of thinking in such a way that it looks simple but in fact is, I would not say complicated, but “involved”. It is a business.
I hope these thoughts help others in forming their own business plan for trading in such a way that it makes them profitable.
Business/Trading Plan - KISS
Whether it is a business plan or a trading plan, I adhere to this principle. For both I use the same concept:
Initial Stop Loss
Time Stop (if wanted)
Worst Case Scenarios
Each category needs a detailed but clear and simple description. It will help you in becoming clear in your head. It also helps you when you “don’t know it anymore”, you will then look at your trading plan for guidance because you have written it in such a way that you can rely on it! It is your user manual to trade. I will also tell you what to do if some unexpected event occurs.
It is a numbers game!
Understand that this is a money game; a positive expectancy will give you a high(er) probability of having a profit over a large number of trades (> 100).
There is no edge in trading a negative expectancy game.
The first thing is to have a trading plan that gives an edge in the form a positive expectancy. Understanding your edge in the market by way of having a positive expectancy will give you the confidence to trade.
Adequate Position Sizing with a positive expectancy system will determine the height of your account value over time.
As this is a business, define your target: that is daily target, weekly target, monthly and/or yearly target. Define your financial freedom number on a weekly or monthly basis and work towards your freedom number. Financial freedom number is defined as “passive income exceeding your expenses”.
Know when you have reached your goal. What are you going to do when you have reached your goal? How would your trading look like once you have reached your goal? What do you do with excess money? Are you going to invest? In what? How do you deal with large sums of money?
Understand why you are trading. If you make on average $ 1000 per month and your job pays you $ 4000 per month, why trade? To make you financially independent? If your financial freedom number is $3000 per month, you will not be able to reach your goal with trading. Think about finding a way to get to your goals and write it down. Get your partner involved.
Maybe another business suits you better, maybe real estate brings you the positive cash flow you are looking for.
Write a daily routine for your business. As an example:
Download data (for EOD)
Type the criteria in a preformatted Excel spreadsheet
Go through the criteria on your charts and type in the trades in Excel
Submit to your broker (for EOD)
Weekly review of your bookkeeping
Monthly review of your P/L . How many % loss do you allow before you stop trading. What will you do if your plan advises you to stop trading
For example SWAT analysis on an annual basis
Education is part of your routine – reading a book on trading, understanding money management, system development etc.
If there is a psychological problem like fear for “pulling the trigger” make an arrangement with somebody else, like your broker or hire somebody.
If there is fear to lose money, start small, for example with 1 contract.
keep your expectations in check, for example with reality. This is where a coach or friend might be helpful. For example every 6 weeks you might discuss your progress or lack thereof. Trading will expose your qualities as a human being. Learn from your mistakes. Most likely you will make every mistake the books describe. Take responsibility for that.
You and only you are responsible for:
early entry, late entry
late exit, early exit
wrong position sizing
no position sizing
having no stop loss
not following your signals (entry, exits, time stops)
mistakes made by you (timing, market choice, not using stops) or your broker
technical issues like internet failure, computer break down, platform failure during heavy trading
choosing the right broker for your needs, the platform that suits your needs, computer equipment
choosing the right market for example one that has enough volume
not having your brokers telephone numbers at hand when something unexpected happens
not having a second charting or ordering platform if one platform has a problem or fails
your state of mind.
Not having a trading plan
Not reviewing your trades and system
Not reviewing your psychology annually (weaknesses, strength, things to improve)
Not making enough time available to enjoy life (partner, children, hobby’s) because of trading
For making such arrangements in your life that it will set you up for the highest probability for success (as defined
Understanding what responsibility means and how it applies to your life.
being successful and enjoying it
Thus far, you have got:
A business plan
A trading plan
When you start trading, or somebody else trades for you, you would like to have a good idea of the money he/she is making. Bookkeeping of the trades is advised.
Here is an example to categorize trades in an Excel spreadsheet:
Apart from the usual stuff like date of entry, price, exit date, money management etc.
Entries, for example:
1.Pull back Long
2.Pull Back Short
3. Stochastic crossover
4. MVA crossover
Direction of trade: trend, countertrend, sideways
Trade Category: intra-day trade, swing trade (EOD)
Time Frame – minutes, ticks, end of day
1. Not using stops
2. Listening to broker
3. Not following signal
4. Not raising stop
5. Getting out too soon
6. Taking tip
7. Making a trade due to government report
8. Anticipating a sell signal prior
9. Non-specific fear or greed
10. Margin call
11. Fear of missing a trade
12. High stress level
13. Not in trading plan
Exit strategy, for example:
1. Stop loss hit
2. Parabolic SAR
4. news or before holiday
Coding your steps in trading, over many trades, will reveal your character, your strengths and weakness, areas to improve on or to profit from. This will happen as you go along. One learns all the time.
Attached you will find an example of a spreadsheet I use. You can also have a look at my website:
Good luck with your efforts in becoming the best you can be!
Of the many books I found useful:
Van Tharp – The definitive guide to position sizing
Last edited by Trader J; April 18th, 2012 at 12:36 AM.