Here’s a cautionary tale of a trader who we will call ‘Joe’ who’s not fond of being micromanaged at work and he’s doing something about it! Joe is a couple of trades away from walking into work and announcing his retirement! When Joe trades, he’s the boss, he calls the shots, he doesn’t need to formulate a plan like he does at work, he’ll just buy low and sell high!
Joe has taken a few trades already, made some nice money initially, so much so that he was able to double his position sizes almost straight away. Then he took a few loses which hurt, but that was OK because it wouldn’t have happened if he didn’t have those stupid stop losses, as they get hit and then the market moves off without him. Joe quickly got rid of them because he’s the boss and he can’t have losses! Trouble is, the market then started falling faster than before and he didn’t really know what to do and the guy on the TV said it would turn around soon. That trade hurt financially and psychologically as he’s never been in that situation before, especially at work where he’d been very successful for a few decades and always felt in control.
Anyway, not to worry because Joe decided to use stop losses now and keep them close, so he didn’t have to watch his capital erode away in front of his eyes like that again. He had solved that problem as his stop losses now prevented him from losing too much money, but it was getting frustrating as he would be ‘stopped out’ a lot when not watching the market, only to see the prices rise shortly after?
So he decided to trade intraday, which meant no more surprises and he could keep on top of every move, especially as he had just read an article on ‘shorting the market’ allowing him to trade both ways and capitalise when the market went up & down!
Wow, the daily bars don’t tell you the full story of what happens hour to hour, in the mornings and especially during the evenings! Joe found that when the US markets opened the pace really picked up and he could make big profits in a very short period of time. Maybe he should trade through the night? If he could just get the direction right when the US government made announcements it would be easy money. It turned out that knowing what kind of reaction the market would have to numerous news items was harder than it looked, and the bars would whipsaw up and down, not making any sense. This was confusing and demoralising, and staying up half the night was affecting his health and his family life in a negative manner.
Finally, completely bewildered, somewhat exhausted and financially beaten-up, Joe had to stop trading for his own sanity and his bank account. Joe had to decide; either give up trading and go back to work, or find some help in managing his trades, his emotions and his bad habits! After some time to reflect, Joe decided to take some action and educate himself. This action led him to creating a Trading Plan for himself, which he follows very strictly! As a result, Joe did finally leave work and now trades for a living, but in a much calmer manner & environment.
Now if you have never traded before, ask yourself if you want to follow Joe down that slippery slope? Maybe you have traded before, and parts of Joe’s story sounds familiar? Joe certainly isn’t alone in how he started his trading journey, nor some of his decisions that followed. Luckily at Safety in the Market none of our students are left alone during their market education. Our ‘Trading Tutors’ are on hand to answer any questions that arise during your online coursework and our monthly coaching webinar will help you keep your momentum moving forwards.
FEAR – GREED – EMOTION – PATIENCE – DISCIPLINE – ROUTINE
YOU NEED A TRADING PLAN!
In our Active Training Program we use an acronym called ‘TRADER’ to help us articulate our trading plan and in managing our trades. Here it is below:
T rigger
R eward to Risk Ratio
A ssess the Trade
D eliver your Orders
E xecute your Plan
R eview your Result
During their studies our students learn to put together a plan of action which takes out many ‘human aspects’ of being in a trade. Then they start to build in details that suit their particular market and then finally and most importantly a plan that fits their own personality traits and lifestyle.
Your trading plan will become your template when taking a trade and needs to be clear and concise, fitting onto one sheet of A4 paper. This way it can be placed somewhere accessible, easily read and become part of your trading procedure whether you’re at home or away.
What should your Trading Plan tell you?
-
- When to get in
- When to get out (with a profit)
- When to get out (with a loss or break even)
- How to manage the trade
- When to not take the trade
- To keep a record the results
- To evaluate your performance
Your trading plan will look after you while trading, but it is just part of your ‘Trading Business’.
If you are to become a professional trader then you will need to run this as a business rather than a hobby, for it to last and prosper in the long term. For this to happen you will need to be organised across many facets:
YOU NEED A BUSINESS PLAN!
Why are you doing this? What are your goals?
Where & when are you going to do this?
With what brokers, equipment & what software will you use?
Which & how many markets will you trade?
What will be your routine (analysis / trading)?
How will you fund your education & costs?
How will you manage your capital, in good times & bad?
What about Income & tax?
So, as you can see there are lots of things to think about before embarking on your trading journey. David Bowden takes you through all aspects of becoming a ‘professional trader’ in the Active Trader Program to help you tackle these issues.
David will present you with a template for a trading plan but will also inform you that you will have to personalise it and make it your own. We all trade for the same reason, which is to make money, but we have different personalities and circumstances to operate with and thus ’your’ trading plan should reflect you & your situation.
Your trading plan is your new boss, do what it says, or it will sack you!
“Without it, you have nothing!” – David Bowden