Trading Plans

Trading has a lot of cliches. Cut losers. Let winners run. don't take it personally. buy low. sell high. Etc. you get the picture. being cliche doesn't make these ideas wrong or outdated, it just makes them very common, overused, by definition.

two more general ideas i hear and see very often are:

1. find your edge / you must have an edge / etc

2. trade your plan

i'll let the first one go for now because, well, it's not the topic of this thread .

Trade your plan. What's that mean? WTF is a trading plan? Well, though every trader's plan will be different, i think all plans should share a commonality: a reliable and impartial structure from which you place all trades.

i think too often people see stuff about trading plans and kind of gloss over it. it's kind of like hearing someone say that something happens 85% of the time. 85 percent. 85 per cent. 85 per one hundred. the actual meaning gets dilluted down to %. anyway, the point is that the same thing can happen with trading plans. it's such a vague and ubiquitous concept, but i so rarely actually see it really explained or discussed.

i'm still too new to this game to really offer any innovative insight into trading plans, but i will offer some links that may be helpful:

http://www.stocktrading.com/TradingPlan2005.htm
This was provided by Don Bright via ET

http://store.traders.com/v2020devmodw.html
an article (for sale) by Donald Jones

http://www.investopedia.com/articles/trading/04/042104.asp
'Ten Steps to Building a Winning Trading Plan'

http://www.elitetrader.com/vb/search.php?s=&action=showresults&searchid=1028439&sortby=lastpost&sortorder=descending
a search for Trading Plan in thread topic titles on ET

http://www.futuresmag.com/futuresclassroom/articles/7_11_00.html
a Futures Magazine article on the subject

http://www.realitytrader.com/masterplan/
Vad's book on building Trading Plans

http://www.trade2win.com/media/knowledge/tim-wilcox/T2W_Trading_Plan_Template_2005.pdf
a PDF template from T2W

http://www.trade2win.com/boards/search.php?searchid=785642
a search of Trading Plan in thread titles on T2W

i'm sure there are other useful sites (please feel free to contribute), but that should give anyone unfamiliar with or interested in trading plans a decent running start.

as for the concept itself, one of the important functions i see in creating a trading plan is as a script. If A happens, do B, and if C happens do D, but if E happens do F. it keeps a trader from having to improv all the time. if A does happen and you do B, what will you do if C happens? with a trading plan, it's basically a no-brainer (a very good and priceless thing in trading). by putting in the effort to prepare a trading plan for my trading style and trading edge, i have the script i need to enter and manage my trades. the only truly unknown variable becomes 'What will the market do?' instead of 'What will i do in response to the market?' if i know my lines, i know in advance what i am going to do.

anyway, that's a lil sum'in-sum'in on trading plans. anyone else got any thoughts/insights/perspectives on trading plans? if so, scribe away!!

take care

omni

Thanks for starting this thread omni! Some excellent links in there - I was just browsing through some of them.

One thing that I find very useful is to have a column in my trade tracking spreadsheet that holds "theoretical profit." This column holds the number of points I would have made or lost if I'd followed my plan to the T. I can then compare my theoretical profit against my actual profit in another column and see how I'm doing.

One thing which I don't do yet is to record trades that I missed. At the moment my record keeping only shows trades that I took and how the trade did against the planned trade.

Missed trades could be for a number or reasons including some unavoidable reasons and so you should expect to miss some of your trades. In the long run you should have the same number of missed winners and loosers to balance out the trades that you missed but it would still be great if you could see them in your record keeping.

thx DT.

good ideas regarding missed trades. you know, i used to keep a rough record of untraded signals, but didn't like the results. just got me all in a funk. i figured out that i needed to become more consistent first, then i could look at fine-tuning my trading by more accurately tracking missed opportunities. for one thing, tracking missed trades/signals/etc can be nearly as time-consuming as working with actual trades. but i'll get there, and when i do i will keep a closer eye on what i didn't do and why not.

regarding theoretical profits, i have a similar column in a daily sheet i am writing. actually, it's two columns: Max Gain and Loss From Top. i think LFT is typically figured on an entire day, but i'm doing it on a per trade basis. at the end of the day i can still get LFT for the session. anyway, MG and LFT give me an idea about:

1. how profitable the trade could have been (i.e. was it ever much of a winner or hardly much above a loser from the git-go?)

2. how much profit am i squeezing out of each trade?

3. how much profit am i giving back?

BTW, i've attached a DOC template for the trading plan in the PDF i listed earlier.

hth

Thanks for the doc file omni - looks very good - I wish I wasn't so snowed under with work at the moment - I'd love to go through it in more detail right now - hopefully soon though.

One of the comments that you've just made: "for one thing, tracking missed trades/signals/etc can be nearly as time-consuming as working with actual trades" is one of the biggest reasons that it is so hard to improve your results. The amount of time required to do all the paper work after trading takes up another trading day in itself. You trade for 7 hours and then you do analysis and homework for 7 hours afterwards. That's a 14 hour day 5 days a week which is a 70 hour week.

I don't think that very many people realize that you need to put in that many hours to be successful at trading.

One way to cut down on the paperwork between the "should have taken" versus the did taken is to run the data through your simulator or back testing system at the end of each week and see which trades it generates and then just compare them with what you did. If you are running multiple strategies (as most people are) then you tag each trade that you did with a trade type which allows you to select trades just of that type and compare it to the simulated results.

For example, say that one of your trades is the VAH and VAL trades - i.e. short/long off those areas if we open 2+ points away from them. It is fairly easy to write a back testing system with this in eSignal and then compare those trades at the end of each week against your results for just the VA trades.

You definitely need to automate as much as possible in order to be able to distill sufficient useful information to access your performance against your strategy. I find that you can often copy trade data out of your trading platform and with an Excel macro (one that you record - you don't need to program it) you can strip the data into columns and then do summary analysis on that.

I seem to be rambling now...