03 Oct Writing a trading plan — part 3
Writing a trading plan
One of the best sources out there for learning anything about trading is definitely without a doubt; Investopedia. So many highly professional contributors and knowledge to be found there. That is also where I found this article on ‘Building the Perfect Master Plan’ by Matt Blackman.
So thanks to Matt and thanks Investopedia.
Part of a series
This is the third part of ‘writing a trading plan’. Not sure how many parts it will have because that all depends on how much work each part will take to write. I will continue this series until I have a working trading plan that I can be consistent with. I will mention all mistakes and things that did go well to the best of my ability and in all honesty. Thanks for taking the time to read it.
Click here for my disclaimer. It basically says that I am on my path to becoming a trader and these are just my opinions on how to approach learning to trade. Feel free to check it out and comment on it.
Here it goes…
Summary so far
In the first part of writing a trading plan I talked about things like skill assessment. You first have to learn some basics before you have a better understanding on how to make a plan. Then I took a look at ‘mental preparation’ and made a mantra for myself. A mantra I will say before I start my trading session. Afterwards, I established the amount of risk I am willing to take. This was primarily based on my balance chart, take a deeper look into my balance chart here. At the end of the first part I wrote about my personal goals regarding trading.
In the second part I wrote about doing your homework. The things that, in my case, crude oil has correlations too. News to read. Financial instruments to watch in order to prepare myself for a trading session. Then I concluded that because I trade the very small time frames I don’t have to take them into consideration that much.
In this third part I will continue following the trading plan outlined by Matt in his article on Investopedia. The remainder of the items are:
- Trade Preparation
- Set Exit rules
- Set Entry rules (next blog post)
- Keep Excellent records (next blog post)
- Perform a Post-Mortem (next blog post)
So let’s get started with working on the next item which is ‘Trade Preparation’.
The author of the article, Matt, talks about the importance of outlining the major and minor support and resistance levels. Setting alerts for entry and exit signals. And keep distractions away from your trading desk.
How does this look like for me?
- On the daily chart I draw a rectangle covering what I consider to be the support & resistance area
- Then I draw trend support line with the Fibonacci channel tool on the daily chart
- I draw the support trend line and the Fib. channel tool gives me the Support & Resistance lines of the price action above it. Don’t know what the Fib. channel tool is? GOOGLE it.
I like to keep my charts clean because when I draw too many lines it gets really confusing. Also, just because you noticed a certain line somewhere doesn’t mean there’s much of a significance to it. So keep it simple. Be patient. Ride the wave.
Getting rid of distractions
For me the biggest distraction is the clutter on my desk and that’s why I have a rule that every night I will clean my desk. Another annoyance of mine is loud noises from outside. Let me sketch you a picture. I live in an Asian country, next to a temple. So often times they practice and prepare for some holiday, which they have a lot of, and it gets noisy quick. Not complaining about that at all, that is in fact one of the things I like about Asia. However, to battle this before I start my trading session, I listen to music. Read here more on how I get prepared mentally.
Set Exit Rules
According to the article most traders concentrate on their buy signals but not on when they should get out. I must agree with this because I was doing great and ‘betting’ in the right direction most of the time. However, the losing trades I had I wouldn’t close thinking prices would eventually go back to it and I could close on a profit. Sometimes this would work, other times not. Because of this I would blow my account and lose it all, let alone the gains.
Adapt and adjust
I believe with every endeavour you start off by doing one thing. Then you adapt and adjust if it doesn’t work. That’s what is going to happen here for me. When I looked at my balance chart I saw that more than not I would get the direction right. Keep in mind that I don’t have that much of ‘historical’ data to go by on. But like I said, you take one thing than adapt and adjust. In my case that is as soon as I take a trade, I will put my stop/loss and take profit each at ten points/pips. Most don’t agree and say that your ‘take profit’ should be twice as big as your stop/loss, and maybe they’re right. But since I make high volume trades I am ‘betting’ on the premise that I make more correct trades than not and thus in the end will make money. We’ll see how this goes first and if needed later, adapts and adjust.
To be continued…
Thank you for reading. In the next post I will share with you my entry rules and how I track my trades. Every trader needs to keep a trading journal for review later. To learn from mistakes and so on. Hope to ‘see’ you in the next one.
As always, leave a comment if you feel like it. Troll me if you feel like that. Up to you really.