Jim Berg, Tim Wilcox & John Atkinson
How To Write Your Own
Stock & Futures Trading Plan
A Step-by Step Template to your Trading Success
Foreword by Dr Brett Steenbarger PhD,
author of The Psychology of Trading
Tim Wilcox
Jim Berg

Tools of the Trade
Trading Discipline

Trading Strategies
Money & Risk Management

Set Ups and Entries
20 Golden Rules
By Tim Wilcox, UK private trader at Trade2Win.com &
Jim Berg, author of The Stock Trading Handbook &
John Atkinson, Jim’s co-editor of the Investing & Online Trading newsletter &
author of The Atkinson-Guppy Articles & 7 Secrets to Profitable Online Trading
Copyright © Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com 2008
1
2
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
Acknowledgements: The authors would
www.trade2win.com for their contributions.
like
to
thank
Dr
Brett
Steenbarger
and
the
traders
at
First Edition: July 2006
3rd Edition: November 2008, published by www. ShareTradingEducation.com
Disclaimer
In preparing this publication, the authors and the publisher, ShareTradingEducation.com (“STE”), as Corporate
Authorized Representative of Avestra Capital Pty Ltd (“Avestra”), AFSL 292464, have not taken into account the
investment objectives, financial situation and particular needs of any particular investor. Before making an
investment decision on the basis of this publication and the accompanying material, the investor needs to
consider, with or without the assistance of an adviser, whether the advice is appropriate for them in view of
their individual financial circumstances.
Any projections made in this publication are estimates only and no guarantee is provided that those projections
will be realized. Further, the authors, Trade2Win.com (“T2W”) and the publisher, STE and/or Avestra do not
warrant the accuracy of the information in this publication. The authors, T2W, STE and/or Avestra and its
officers, employees, agents, associates and alliance partners (“Associates”) may have or may obtain an interest
in the securities referred to in this letter and will receive commissions, brokerage and other fees from dealing in
the securities or advising in respect of the proposed listing of the securities.
The authors, T2W, Avestra and/or STE believe that the information contained in this publication was accurate at
the time it was compiled. The authors, T2W, Avestra and/or STE do not warrant that the information contained
in this publication is accurate, complete, reliable or up to date and to the fullest extent permitted by law
disclaims all liability of The authors, T2W, Avestra, STE and its Associates for any loss or damage suffered by
any person by reason of the use by that person of, or their reliance on any information contained herein,
whether arising from the negligence of the authors, T2W, Avestra, STE or its Associates or otherwise.
All reasonable steps and due diligence have been taken in preparing this document. However, it may contain
ideas that are not appropriate to you or your style of investing or trading, so it is up to you to do your own
research and draw your own conclusions. By itself, this document will not enhance your investing or trading
performance, nor will it prevent you from incurring losses.
Any losses that are incurred are the sole responsibility of each trader and investor.
The decision to trade and the method of trading is for the reader alone to decide. Direct investing in the stock
market can result in financial loss. Past performance is no indication of future performance.
The authors, T2W, Avestra and/or STE expressly disclaim all and any liability to any person, whether a
purchaser of this publication or not, in respect of anything and of the consequences of anything done or omitted
to be done by any such person in reliance, whether whole or partial, upon the whole or any part of the contents
of this publication.
Copyright
The information contained in this publication is copyright © 2008 and for the sole use of readers who have
purchased it. All rights reserved. No part of this publication may be reproduced, copied or circulated to other
readers. Each issue incorporates fingerprint protection that enables us to track the original source of pirate
copies. Offenders may be prosecuted
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
3
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
CONTENTS
– Click on the links below
Foreword by Dr Brett Steenbarger PhD
4
Introduction by John Atkinson
6
Glossary of Terms
14
Chapter 1
Trading Plan Overview
15
Chapter 2
You and Your Goals
20
Chapter 3
Markets and Tools of the Trade
30
Chapter 4
Money and Risk Management
46
Chapter 5
Exit Strategies
67
Chapter 6
Trade Strategies – Set ups and Entries
79
Chapter 7
More on Jim Berg’s Trading & Investing Strategies
87
Chapter 8
Record Keeping and Discipline
96
Chapter 9
20 Golden Rules
102
Chapter 10
Trading Plan Template Summary & Conclusion
110
Bibliography
118
Glossary
119
Jim Berg’s and Other Trading Tools
including Discounts for Purchasers of this ebook
120
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
4
Foreword
by Brett N. Steenbarger, Ph.D
www.brettsteenbarger.com
A new business, before it seeks capital from a bank or venture capital firm, is expected to develop
a detailed business plan. This document explains the competitive situation in the marketplace,
niches of opportunity, and the ways in which the new business will exploit those niches.
Similarly, a professional football team scouts its opponents, determines their strengths and
weaknesses, and develops a game plan to exploit the weaknesses and cope with the strengths.
When a platoon goes on a reconnaissance mission, it is with a specific plan that reflects an overall
mission, evaluation of the enemy, assessment of the terrain, status of the troops available for
combat, and the time available.
Planning is a universal aspect of performance fields, and trading is no different. In The Stock
Trading Plan Template, you will find a treasure trove of considerations in generating plans to guide
your activities as a trader or investor.
John Atkinson, Jim Berg, Daryl Guppy, Alan Hull and Tim Wilcox have done a masterful job of
summarising the most important facets of Trading Plans:
¾
Assessments of your strengths
¾
Details of:
Your trading methods
Your overall goals and
Your methods of risk management.
The message that the authors convey is that trading is a serious business, requiring planning that
is every bit as thoughtful as the strategic thinking of athletic coaches, military leaders, or
corporate chief executive officers.
Conducted properly, planning is both a psychological aid—orienting the trader—and a logical one,
charting a path to success.
If there is a message I can add to the authors’ wisdom, it is this: Planning, while necessary to
success in performance fields, is not sufficient.
Look at athletics, the military, and performing arts and you will see that plans are rehearsed with
structured drills.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
5
A plan is not a document to be formulated and then tucked away in a drawer. It is a road map for
what performance researcher K. Anders Ericsson calls deliberative practice.
You drill and drill a plan until it becomes automatic.
That is how SWAT teams, surgeons, elite military units, and Olympic champion boxers achieve
their success: they turn plans into habits.
Show me a performance field—chess, sport, or music—and I will show you a field where success is
determined not only by planning, but by the use of plans to guide intensive practice routines.
The plan you develop from this Template is your opening step as an elite performer. Whether you
ultimately succeed or not will depend upon whether your plan guides you in the practice of skills
that account for trading success.
I am a psychologist and I am as sensitive to the role of psychology in trading as anyone. But I am
also a trader and someone who works daily with professional traders in their trading setting.
I can tell you with certainty that there is much more to trading success than having a good
mindset and a noble set of intentions.
Trading, no less than music, athletics, or any other performance field, requires both talents and
skills.
Your Trading Plan is your blueprint for using your talents to hone your skills and find your success.
This book is a wonderful start to your performance adventure. Good luck!
Dr Brett Steenbarger PhD
www.brettsteenbarger.com
Brett N. Steenbarger, Ph.D. is Associate Clinical Professor of Psychiatry and Behavioral Sciences at
SUNY Upstate Medical University in Syracuse, NY and author of The Psychology of Trading (Wiley,
2003) and ‘Enhancing Trader Performance’ (Wiley 2007).
As Director of Trader Development for Kingstree Trading, LLC in Chicago, he has mentored
numerous professional traders and coordinated a training program for traders. An active trader of
the stock indexes, Brett utilises statistically-based pattern recognition for intraday trading and
posts his results at www.traderfeed.blogspot.com.
Brett does not offer commercial services to traders, but maintains an archive of articles and a
trading blog at www.brettsteenbarger.com. His book, ‘Enhancing Trader Development, is due for
publication soon (Wiley).
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
6
Introduction
Renowned trader authors such as Louise Bedford, Jim Berg. Dr Alexander Elder, Daryl Guppy, Alan
Hull, Dr Brett Steenbarger, Chris Tate, Dr Van Tharp, Frank Watkins and others did not suddenly
decide to write a book on market trading or investing because “…. it seemed like a good idea at
the time.”
They started writing because they had been through personal experiences (good, bad or even
ugly) which they considered other investors could benefit from, by sharing what they had learnt.
In this ebook we introduce Tim Wilcox from England. As an example of how powerful the electronic
grapevine works, we found out about Tim’s stand-out work through the Singapore based
Stockmeetingplace.com forum in Australia, which referred to the forum on which Tim contributes
in the UK, called Trade2Win.com.
Like many aspiring traders, Tim Wilcox entered the trading world knowing absolutely nothing
about it. Nonetheless, he was convinced that it was the fast track to wealth and that he could do
it. This wasn’t just his gut feeling, it was endorsed by the ad’ in his local Exchange & Mart which
read: . . .”some (people) have just made up to £32,500 in 28 days, and so could you”.
Excited, he paid several hundred pounds for a large binder that, supposedly, contained everything
he needed to know to trade options. That was back in late 1998. Surprise, surprise, Tim never
traded a single contract and quickly came to the conclusion that perhaps he’d been somewhat
hasty in his conviction that trading was the “....easy option”.
After a fallow period of a few years and a handful more courses, the penny finally dropped in early
2002. Tim realised that the market gobbles up amateurs like him and spits them out again before
breakfast.
To stand even a slim chance of survival in this game, he had to start to treat trading and investing
as a business. This means he had to acquire the appropriate tools and learn the necessary skills.
In other words, he would have to do some hard work.
During this period of study, Tim became very aware of the fact that books, magazine articles and
message boards etc. all seemed to be singing from the same song sheet on the subject of Trading
Plans – “quite simply, you’ve got to have one! “
However, he couldn’t find anyone or anything that explained in any real detail how to go about
writing one. The ‘Stock Trading Plan Template’ is the result of this quest.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
7
Surprisingly, Tim still regards himself as a novice trader and feels that he has a long way to go
before he turns his part time hobby into his full time profession. However, he remains confident
and optimistic that one day his dream will become reality.
Tim Wilcox says: “If you want to make a lot of money very quickly – especially if you haven’t got
a lot to start with – play the lottery, the odds are better there. It’s taken me years to accept fully
what is blatantly obvious to most people; successful traders and investors have a thorough
knowledge of their subject and a thorough set of skills to match.
Great traders and investors have a dash of natural talent as well. There are no short cuts; the
market rewards those people who pay their dues. The bad news is that this means many hours of
hard work.
The good news is that anyone can study the business and learn the necessary skills in the comfort
of their own home, in their own time and at very little cost. This is very difficult to do in almost all
other professions and the rewards don’t even begin to compare.
If, like me, you’re finding the trading or investing road pretty bumpy, poorly signposted and
replete with cul de sacs – take heart as it means you’re probably doing something right. Trading
isn’t meant to be easy. On the contrary, it’s an extraordinarily efficient griddle designed to shake
out those who are greedy, impatient and lazy.
I’ve come very close to falling through that griddle several times. It may still happen, who knows.
In the meantime, to help me to remain in the game, I ensure that my goals are modest, I accept
that it will take time to acquire the necessary skills and I try to devote a little time to the markets
every day.
This approach reduces my frustration levels, takes the pressure off me to become successful and
minimises the risk of me losing all my money before I reverse the trend and start to become
consistently profitable”.
In contrast, my business partner Jim Berg is a former broker, private trader and lecturer with over
25 years experience in the investment industry.
He has appeared on CNBC Asia, Market Wrap and Foxtel’s Sky Business and is a regular guest
speaker at such institutions as the Australian Stock Exchange (ASX), the Sydney Futures Exchange
(SFE), the Australian Technical Analysts Association (ATAA) & the Traders Expos at capital cities
throughout Australia.
His articles have been published in the ASX newsletter, Shares, Personal Investor, Your Trading
Edge in Australia & Stocks and Commodities in USA.
Jim's first book The Share Trader's Handbook was a sell-out success & is no longer available in a
book format. It has been completely updated as an ebook 'The Stock Trading Handbook –
Fundamental and Technical Analysis Combined'.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
8
Using the strategies demonstrated in this Trading Plan template ebook, our newsletter, his Stock
Trading Handbook and his ‘Trading Strategies with JB Charts’ Home Study Course, Jim Berg won
the 2002 Personal Investor magazine trading competition in Australia.
This was a significant achievement, particularly as this was accomplished in the depths of a
worldwide three year bear market. Most traders can make profits in a bull market, as a rising tide
lifts most ships. It takes real skill to outperform in a bear market.
Over his 25 years of trading the market, Jim Berg has developed trading and investing strategies
that really work. Jim is the co-editor of our weekly ‘Investing & Online Trading’ stock market
newsletter and answers questions on the share market at the unique ‘Ask Jim Berg’ segment at
the Sharescene.com stock market forum.
As Jim says: “The easiest way to learn to trade is to have someone take you, step by step,
through a series of trades. You then learn their complete trading strategy, entry, stops, exits and
why and how they act/react to price moves."
Having and sticking to a successful Trading Plan is a vital key to profitability and longevity in the
market.
In his ebook ‘The Stock Trading Handbook - Fundamental and Technical Analysis Combined' Jim
Berg wrote:
“There is a well worn cliché “If you fail to plan then you’re planning to fail”. Unfortunately for
far too many traders and investors, this is very true.
We cannot emphasise strongly enough the importance of having a Trading Plan which, at the very
minimum, should list how an investor will:
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
9
Evaluate market conditions
Choose investing and trading strategies
Select which share, fund, index etc to buy
Detail methods for:
Entry and exit conditions

Money and risk management, including Position Sizing

Stop Loss calculations

Protecting profits

Setting profit targets
Trading Plans must be written down, kept in a prominent position and most importantly, followed
with discipline. In his books, Dr Alexander Elder emphasizes the importance of keeping accurate
records of all open and completed trades.
These can then be used as a basis for reviewing the success of the Trading Plan and for
subsequent updates.
Many readers may already be aware of their need to have a Trading Plan but may be wondering
how to start or update their current plan.”
Private UK trader and investor Tim Wilcox laid the foundation for this ebook by preparing what we
consider to be an invaluable Template for setting up such a Trading Plan. He originally collated the
priceless thoughts and experiences of many traders and investors at the Trade2Win.com forum
who collectively and at very real personal costs and profits, have learnt both about the pitfalls and
the opportunities within the market.
Tim’s initial Trading Plan Template was originally released at www.Trade2Win.com as a small
ebook of about 50 questions, with some brief answers suggested by Tim.
In it, Tim Wilcox said:
“Towards the end of 2004, a thread entitled ‘A Trading Plan – You MUST Have One!’ on the
‘Trading for a Living’ forum was started on www.trade2win.com (T2W).
The purpose of the thread was to produce a template by which all investors - regardless of
experience, instruments traded, timeframes and brokers etc. - could create a professional trading
plan. This document is the result of that thread.”
It comprises two main sections with a third section that in time will, hopefully, contain examples of
real plans created using the template.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
10
The Trading Plan Overview addresses fundamental questions regarding the subject, starting
with a simple definition. It then moves on to discuss why investors need a plan at all and, once
they have created one, what it will do for them.
Those investors who are already convinced of the merits of having a plan, please feel free to skip
this section.
The Trading Plan Template - This section is the nuts and bolts of the whole document. It
comprises ten key units, with a series of questions in each one: about 50 in total. This is rounded
off with a final unit: ‘Golden Trading Rules’. The hope is that any investor can use the template to
create their very own custom-built trading plan.
Make no mistake, it will take time and effort to complete. But, having done so, you will at the very
least, gain a greater insight into the kind of investor you are now and enable you to focus on the
kind of investor you want to become.
Explanatory notes and an outline for a possible answer accompany all the questions. For ease of
navigation, there is a reference number at the start of each paragraph.
If you get stuck at any point, help is at hand from fellow T2W members.
Just post your query at http://www.trade2win.com/boards/showthread.php?t=12585 with the
relevant reference number on the thread:.
Naturally, you can add elements to your own plan that you think are missing on the template and,
conversely, delete elements from the template that you feel are not applicable to your plan. In
order that other investors may benefit from your amendments, please post your ideas on the
thread above”.
At the back of his original document, Tim invited other traders to submit their own Trading Plans
to put “flesh on the bones” of his template - to provide a “valuable insight into how different
traders interpret it.”
Hence in mid 2005 we contacted Tim Wilcox in England as we were about to launch our own
Investing & Online Trading stock market newsletter in Australia. We realised that although we
were trading different markets from completely the other end of the planet, Tim’s work was still
highly suitable and could be adapted for any market in the world - as the principles remain the
same.
We were delighted when Tim Wilcox replied promptly and agreed to us progressively sharing the
result of his significant Trading Plan work in our newsletter.
Having the checklist of questions, originally posed by Tim, to think about is a major part of a
Trading Plan. Borrowing an experienced trader’s proven system - as a basis to come up with your
answers - helps complete the puzzle.
Over the course of several months, Jim Berg added solutions from his own experience to provide
additional input to Tim’s original work and thereby created a combined Trading Plan Template.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
11
This helped the readers of our newsletter adapt and create their own investment or trading plans.
It also now forms the basis under which equities are selected and managed in the portfolios of
notional long term investing and short term trades which our newsletter tracks and reports on
each week.
We subsequently decided to collate the series of articles back into a comprehensive document.
This ebook, ‘How to Write Your Own Stock and Futures Trading Plan’ is the result. Regardless of
whether you invest in the same market as Tim Wilcox in England or Jim Berg in Australia, the aim
of this Trading Plan Template is to provide investors and traders with the education to adapt and
use in their market, wherever it may be in the world.
Tim Wilcox prefers short term trading e.g. of stocks, futures contracts and foreign exchange. As a
result, the title of this ebook includes reference to futures - which are featured in the Tim’s
contribution, as per his original ebook.
In comparison, Jim Berg’s approach leans towards more conservative longer term stock/share
investing in fundamentally sound companies.
In our newsletter, Jim has also developed a shorter term stock/share trading strategy which is also
covered in his Stock Trading Handbook and Chapter 7 of this Trading Plan Template ebook.
The exit signals for these notional trades generally occur within a few days to about a month or
more.
Consequently, in this ebook, Tim Wilcox poses the questions to be considered when writing a
Trading Plan and provides some brief solutions from his perspective related to stocks, futures
contracts and foreign exchange.
Simultaneously, Jim Berg’s focus is on his trading strategies that he uses for long term investing
and short term trading of stocks/shares. Hence more in-depth responses to Tim’s original
questions are provided in this ebook on stocks than on futures or other instruments.
The principles covered in this Trading Plan Template on how to write your own Trading Plan can be
applied to the various systems covered in this ebook and many others.
The approaches and strategies outlined here are examples of a few, of perhaps hundreds, of
different ways to trade the market, for there are as many different trading strategies as there are
markets and time frames to trade.
Our intent in presenting this Trading Plan Template is to give both beginning and experienced
traders an example of the process of putting together a Trading Plan.
It is not intended that this Trading Plan Template will ever be used exactly as presented, as each
investor’s personality and trading philosophy will differ and result in a personalized trading
strategy that suits the individual.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
12
Historical results are no guarantee of future performance. No representation is being made that
any account will or is likely to achieve profits or losses similar to those shown.
Importantly, after reviewing the many suggested answers to the Trading Plan Template questions
in this ebook, you then need to determine what’s important to you and how you want your Trading
Plan to look like – not Tim’s or Jim’s.
It’s essential to develop your own Trading System and Trading Plan to suit your personality,
lifestyle and circumstances.
The final decisions and responsibility for those decisions will be your own and we must emphasize
the disclaimers throughout this ebook and the Terms of Use at www.Sharetradingeducation.com.
Any losses that are incurred are the sole responsibility of each individual trader and investor and
no liability will be accepted by the authors, Sharetradingeducation.com, trade2win.com, Avestra
Capital, their agents or other contributors.
So what are the consequences of not developing and sticking to your Trading Plan? We warn that
you will probably lose overall - and maybe lose in a big way……….
……… It’s only a matter of time.
Without a structured Plan, sooner or later you may change from being a conservative investor to
trying to ‘overplay’ the fast track of speculative or leveraged trading …….. or may be overexposed
in one sector…… or be holding too many positions …….. or too large a position ……and the market
suddenly turns or, worse still, crashes.
Or maybe you will ignore your stop losses (if you’ve set them in the first place) and go into the
BHP approach (Buy, Hope and Pray).
Or maybe you will listen, as we did at the start of the tech stock crash in 2000, to a licensed
broker at a large Institution who advised us:
“It’s not a loss unless you sell it” and
“If it’s broken today, it’s fixed tomorrow” (meaning wait for prices to “come back”)
and
“Sell anything that’s even money or better” - which means you end up selling your
best performing stocks and holding on to your losers.
I apologize for being brutally honest, but my reason is to help save you from yourself. Believe me
it can happen. It did happen…… as a result …… after doubling on paper a large portfolio in only six
months, we then lost our Sydney Harbour waterfront home in 2000 and were set back over 15
years financially …… plus terrifying emotional turmoil and stress at that time and later.
I therefore write from real life experience in the school of hard knocks of knowing now that if we
had developed even a simple Trading Plan and had stuck to it with discipline - then we would not
have been set back financially over fifteen years - let alone the emotional terror and distress
experienced personally and by our family.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
13
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
So it is with the utmost conviction that I now urge you to not only read this ebook, but then to
take the time to sit down and actively create your own Trading Plan. Build it step-by-step using
this Template, together with any other information you may have accumulated.
Take your time. Believe me it will be worth your effort.
research time you ever spend in the market.
It will probably be the most valuable
Some housekeeping before we begin. In his original document, Tim referred to ‘traders’. For the
purpose of this ebook we freely interchange the words ‘trader’ and ‘investor’ and the words ‘stocks’
and ‘shares’. We have deliberately kept the main structure of this ebook to follow that of Tim
Wilcox’ original valuable work.
This includes keeping Tim’s original question numbers as a basis, although we’ve added some
extra sections e.g. to Question 12 in Chapter 7.
To help readers easily find other resources, hyperlinks are provided within this document. Simply
click on the links for further information. Also, at the back of this ebook are links to hidden web
pages where readers may obtain significant newsletter member discounts on Jim Berg’s
trading tools - at www.sharetradingeducation.com
In the following chapters, Tim Wilcox’s suggested answers are prefixed ‘TW’ and are shown in
italics. Jim Berg’s answers are prefixed ‘JB’ and are shown in blue.
Questions on topics covered in this ebook may be directed to Tim Wilcox at his thread at
http://www.trade2win.com/boards/showthread.php?t=12585
Questions on the market in general, can be directed to Jim Berg in the
dedicated ‘Ask Jim Berg’ section at the www.sharescene.com forum.
The authors hope you find this ebook of help in your own trading and
investing in the market. They look forward to your feedback at the
Trade2Win.com and ShareScene.com forums respectively.
Trade what you see, not what you feel
John Atkinson#
November 2008
www.sharetradingeducation.com
______________________________________________________________________________
# John Atkinson is the Co-editor, with Jim Berg, of the popular Investing & Online Trading stock market
newsletter.
He is also the author of 2 ebooks, the ‘Atkinson-Guppy Articles’ and co-authored ‘7 Secrets to Profitable
Online Stock & Share Trading’, compilations of some enlightening articles which John has written for Daryl
Guppy’s newsletter ‘Tutorials in Applied Technical Analysis (www.guppytraders.com).
From his real life experience, John has also designed the Atkinson Money & Risk Management Portfolio Tools.
.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
14
Glossary of Terms
The following is an abbreviated Glossary of Terms to explain the terminology used on Jim Berg’s charts, drawn using
JB Premium Charts.
Rising Market – Weekly Chart. Prices making higher highs and higher lows and the close is above a rising moving
average.
Relative Strength Index (RSI) - RSI compares the average of rising price change to falling price change over a
specified period. Traders might use RSI to determine trend, momentum, divergence or overbought and oversold areas.
Average True Range (ATR) - ATR measures volatility by averaging price ranges over a set time period while taking into
account trading gaps. The True Range indicator is defined as the greatest of the following for each period:
The distance from today's high to today's low.
The distance from yesterday's close to today's high.
The distance from yesterday's close to today's low.
The Average True Range is the average of the true ranges over the past x periods, where x is specified by the user.
Initial Stop – We purchase stocks when we believe they will rise in value. We do not want to own them if their price
declines. The Initial Stop is the point at which we decide to exit a position. This stop is calculated before entering the trade
and is designed to keep losses to a minimum. One close below the Initial Stop is an exit signal.
Jim Berg’s Volatility Trailing Stop – A trailing stop is used to protect profits and replaces the Initial Stop once prices
have moved up sufficiently. The trailing stop used in this newsletter is based on Average True Range (see above). Two
consecutive closes below the Trailing Stop is an exit signal.
Jim Berg’s Blue Bar Entry Signal – A volatility based indicator which changes the colour of the daily bars from red to
blue when prices have moved sufficiently up from a significant recent lowest price.
Berg Profit Taker – A Jim Berg indicator used in the short-term trading portfolio. Stock prices often move too far too fast,
offering a profit taking opportunity. A close above the JB Profit Taker, with a profit of at least 10%, is an exit signal.
A FREE full ‘Glossary of Terms’ ebook may be downloaded by registering/logging in at our Free Downloads Section at www.
sharetradingeducation.com.
Jim Berg’s JB Volatility Indicators and Watch Lists are part of the JB Premium Charts & data package, which, together with
‘Trading Strategies with JB Premium Charts’ form part of his complete JB Combo.
Also, for Metastock Users, Jim’s Volatility Entry Metastock Advisor & Explorations form the basis of his Metastock Volatility
Charting Template, which is also included as part of his Home Study Course – ‘Trading Strategies with Metastock’.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
15
CHAPTER 1
Trading Plan Overview
By Tim Wilcox
• What Is a Trading Plan?
• Who needs a Trading Plan?
• What Will a Trading Plan Do?
• Before you Start
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
CHAPTER 1.
16
TRADING PLAN OVERVIEW
1. What is a Trading Plan?
1.1 A trading plan is a complete set of rules that covers every aspect of your investing and trading
life. Many experts refer to the need to have an ‘edge’ which will tip the balance of probabilities of
success in your favour. In itself, a plan is not an edge but, over time, the investor with a plan will
fair a lot better than the investor without one.
Many amateur investors do not have any sort of plan to trade by, and enter the markets with
scant regard to their risk and profit objectives. Suffice to say, comprehensive risk and money
management strategies lie at the heart of all good trading plans.
1.2 Investors with a plan have the ability to monitor their performance. They can evaluate their
progress continually, day-by-day, in a way that is objective and comprehensive. This enables them
to invest without emotion and with minimal stress. The investor without a plan is not able to do
this and their investing tends to rely upon gut feeling, hunches and tips etc. Investing for them is
a nail biting, emotional roller coaster ride of stress that, inevitably, results in financial loss.
1.3 Obviously, a plan does not guarantee success; that would be too simple. However, a good
plan that is adhered to strictly will help to minimise losses and enable you to stay in the game a lot
longer than investors who do not have a plan. In his book ‘trading online’, Alpesh B. Patel writes,
“While a plan cannot predict the future, it can lay down how you react to the possible outcomes.
This is why a plan is essential. It is a list of strategic responses to events beyond your control. You
control the only thing you can control – yourself”.
1.4 Some confusion exists over the difference between a trading plan (or system) and a trading
strategy. As stated above, the former is a complete set of rules that governs every aspect of your
investing life. It goes into great detail and may, for example, stipulate the amount of time devoted
to reading threads on forums such as T2W (or Sharescene.com or Stockmeetingplace.com)!
The term ‘trading strategy’ tends to be used to describe trade entry and exit criteria. However,
these are merely elements of an overall trading plan and possibly not even the most important
ones. It is perfectly feasible, desirable even, to include two or more trading strategies (i.e. entry
and exit criteria) within an overall trading plan.
2. Who Needs a Trading Plan?
2.1 Who needs a trading plan? Well, unless you have been a consistently profitable investor over a
sufficient length of time to encompass a number of different market conditions, then YOU need a
trading plan!
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
17
If you have achieved this, then this document may not tell you anything you do not already know.
However it may still prove useful as a “refresher” course or indeed open your eyes to new aspects
of trading that can improve your profitability.
2.2 Some people have described a trading plan as a roadmap. It is quite literally the route that
will take you from where you are now to where you want to be which, for most traders, is
consistent profitability. In this analogy, consistent profitability is the destination. To embark on a
car journey from John O’Groats to Land’s End without a good roadmap would, probably, be unwise
and the possible consequences of doing so are obvious.
Similarly, to embark on investing in the market without a clear idea of where you are going, and
how you are going to get there, will almost certainly result in increased stress, sleepless nights
and financial loss - or all three. The question you must ask yourself is this: if you would not dream
of driving from the north of Scotland to the most southerly tip of England without a detailed
roadmap, why on earth have you not got a detailed and clearly laid out trading plan?
3. What Will a Trading Plan Do?
3.1 A trading plan will make the act of investing simpler than it would be if you invested without
one. It will limit your opportunity to make bad trades and it will prevent many psychological issues
from taking root. It will help you to achieve these things because wherever you are on your
investing journey, it will not only act as a roadmap, but also locate your position as well.
Most importantly, if your investing is going badly, you will know it is down to one of only two
possibilities: either something in the plan is not working or you are not adhering to the plan.
If the plan is a good one and it is back tested and paper traded, (or forward tested with a very
small amount of money) then the fault is likely to be found in the latter of the two options. But,
what if you are losing money whilst investing without a plan?
It is virtually impossible to distinguish what you are doing right from what you are doing wrong.
You have no way to evaluate your results, therefore the likelihood of being able to diagnose the
fault and correct it is small and could take forever.
A trading plan is your personal GPS device to locate your position and, if you have made a wrong
turn, it provides the means to identify where you went wrong and how to get back on track. You
are able to evaluate continually your results and, more importantly - your discipline - in a manner
that is objective and comprehensive. This is extremely difficult to do if you do not have a plan.
3.2 A trading plan should take away much of the decision making in the heat of the moment.
Emotional issues will become very powerful when real money is on the line and, as likely as not,
force you into making irrational decisions. With the correct trading plan, your every action should
be spelled out, so that in the heat of the moment you do not have to make any decisions, you just
follow what the trading plan stipulates.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
18
3.3 Okay, I hope you are now totally sold on the merits of having a detailed
and clearly laid out trading plan. Here is a summary of what the key benefits are:
Relaxed, stress free investing that is simpler with a plan than it is without one
Ability to monitor your progress, diagnose faults and amend the plan
accordingly
A plan helps to prevent many psychological issues from taking root
A plan that is adhered to strictly will reduce the number of bad trades
A plan will help prevent irrational decisions in the heat of the moment
A plan enables you to control the only thing you can control - yourself
Professional investors and traders are highly disciplined. A plan will instill a large measure
of discipline into your trading. Gamblers tend to lack both discipline and a plan
A plan will enable you to trade outside your comfort zone. How many times have you let
a loss run and cut a profit short because it was the comfortable thing to do?
A plan, executed with discipline, will help to prevent this from happening
A plan is your roadmap which will enable you to get from wherever you
are now to wherever you want to be – i.e. consistent profitability
The template (and, by implication, your plan) – is designed in such a way that if you do
take a ‘wrong turn’ on your roadmap, you will know about it very quickly and have the
opportunity to correct the problem before losses spiral out of control .
4. Before You Start . . .
4.1 Before you start to create your own trading plan using the template, here are a few pointers
to help ensure that you build the best plan possible. The template is broken down into eleven
units. The objective of the exercise is to end up with a plan that is tailor made to suit your
personality, ability and resources.
Do not be tempted to skip any sections and be sure to work through them in the order that they
appear. The order is specific for reasons that should become clear in due course.
Think of the eleven units as links in a chain or as individual players in a football team; each one is
as important as the other. For those of you who enjoy analogies such as these and wonder which
unit best equates to the ‘goalie’, the answer is unit ten, ‘Risk & Money Management’.
4.2 Quite a few of the units may seem beguilingly simple. Although the template is designed to be
as simple as possible, be sure to give careful consideration to all your answers. For example, the
first unit poses the question, why do you want to be an investor? “To make money”, is a generic
answer that is applicable to all investors.
It is not personal to you and, therefore, it is not helpful to your plan. ‘Investing is a business, just
like any other’, is a cliché that is often quoted and one that is all too easy to forget. You might
enjoy a cappuccino from time to time, but chances are that you would not dream of taking up a
Starbucks franchise - so why become an investor or a trader?
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
19
4.3 In answer to the question in 4.2 above, it may be that you have seen pit traders in garish
jackets on television and thought to yourself ‘I would just love to be that fired up and passionate
about what I do’. If so, you may have a need for excitement. Ordinarily, such a desire is an
admirable one but, in the markets, it could easily lead to catastrophe if allowed to go unchecked.
Perhaps you have heard stories about traders making tens of thousands in a single day? Without
doubt, some do; but they are only a small fraction of the mere 5% of traders who, so it is alleged,
make any money at all in the markets.
Crushing disappointment is often the reward for unbridled greed. Pie in the sky fantasies about
trading via a laptop while aboard a luxury yacht, sipping champagne in the Bahamas, are great
fun, but they are hardly grounded in reality. Such fantasies may help to motivate you to study the
markets, but the emotions that accompany them may not help you when it comes to investing in
the markets. Just as the trader with a lust for excitement is doomed to fail, the fate of an investor
motivated by greed is almost certain to lead to disaster.
4.4 Having these thoughts and emotions is not the problem; it is how you control them while you
are trading that is the problem. Think very carefully about these questions and be brutally honest
with yourself. Do not pretend to be someone you are not because you are embarrassed to commit
pen to paper and admit that you are a thrill seeker chasing the Holy Grail of easy money.
That is okay, after all, a good percentage of the 32,000+ members of T2W started out that way!
In answering the question about why you want to invest in the market, you will uncover the real
motivations, fears and desires that fuel your ambition. Some of these will be helpful whilst
investing, others not. How you allow them to impact your investing is what this document is, to a
large extent, all about. To ensure that the impact is a profitable one, you must start by examining
your real reasons for investing and, hopefully, learn more about yourself in the process.
4.5 Each unit comprises a series of questions (in bold type, like this) followed by a few
sentences (in normal text, like this) to explain the question in more detail. Then there is a basis
for an answer (in italics, like this#) to provide further clarification. The latter is intended as a
guide only and is not meant to constrain your thoughts and ideas in any way.
4.6 All your answers to the questions must be clear and succinct. There is no room for ambiguity
in your plan; so avoid vague, fuzzy statements. Also, where possible, always define and qualify
your statements.
This usually means posing the questions - what, when, where, why or how. For example, suppose
you swing trade the Dow Jones 30 Index. Why the DOW and not the FTSE 100? Because you want
to trade in the evenings, after work? Okay, fair play. How will you ensure your success? Ah, you
will start by writing a trading plan? Excellent! When will you write it? You get the general idea.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
20
CHAPTER 2
YOU AND YOUR GOALS
By Tim Wilcox & Jim Berg
• Purpose
• Personal Attributes
• Goals and ambitions
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
21
CHAPTER 2. YOU & YOUR GOALS
5. Know Yourself, Know Your Purpose
5.1 Almost any professional trader or investor will tell you that the key to success in the markets
lies in understanding your own psyche. (Understanding the psyche of fellow traders, collectively
referred to as ‘sentiment’, is also an invaluable tool). Many inexperienced traders are unprepared
for the violent assault on their thoughts and emotions at the start of their careers. They soon find
their heads spinning with euphoria when winning (greed) and the pits of their stomachs knotted
with anxiety when losing (fear).
Contrast this with many professional traders who, it is said, achieve a sort of trading nirvana,
whereby their thoughts and emotions blend into a sea of calm regardless of whether they are
winning or losing. Their heads do not spin and their stomachs do not churn – ever. For you to
achieve this exalted state, you will need to know yourself and how you will react to both winning
and losing positions. Once armed with this information, your trading plan can incorporate some of
the positive aspects of your psychological make-up and filter out some of its negative aspects.
5.2 Coupled with understanding your own psyche it is important to know why it is that you want
to be an investor. What is your purpose - what does success as an investor mean to you? Decide
what it is that you want to achieve and then ask why and how trading is going to provide it. How
sad it would be if, after a year or more and hundreds if not thousands of pounds/dollars later, you
realised that trading was not for you after all and that the ladder to success was leaning up against
the wrong wall. Okay, here goes – your very own trading plan starts now.
5.3 Why do You Want to be an Investor or Trader?
Question your true motivations. Examine whether your talents would be better suited to another
business like the Starbucks franchise mentioned earlier. Are you certain that trading is the right
business for you? If you believe that the markets exist for the sole purpose of showering you in
vast quantities of easy money – then think again! Beware: it is NOT the easy option!
TW: I want to be an investor because . . . (I am excited by the challenge to be successful in a
discipline that is notoriously difficult and where, allegedly, 90% of participants fail). My primary
objective in wanting to be a trader is to . . . (generate sufficient annual income of £/$______ in
order to support my family). My secondary objective is to . . . (spend more time with my family
and enjoy the freedom of being able to trade from anywhere in the world).
These objectives are important to me because . . . (they provide purpose and direction to my life
and enable me to lead a more balanced one). I believe I can achieve my objectives because . . .
(my name is Larry Williams - say no more!)
JB: I want to be a successful trader because of the life style. As I use weekly and end of day data
I enjoy the freedom to have the time to take part in many experiences during the day without
having to report to a ‘boss’. I also like the flexibility of working from home or being able to trade
from anywhere else in the world. My primary objective is to provide for a comfortable retirement.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
22
My secondary objective is to supplement current yearly income.
These objectives are important to me because they give me the opportunity to spend extended
time with my families in both Australia and the U.S. I believe I can achieve these objectives
because of my experience in developing a Trading Plan and the discipline to follow it without fail.
5.4 What Sort of Trader or Investor are You?
Are you a discretionary trader or a mechanical one? Do you propose to invest in trades in the longterm (i.e. months), medium-term (i.e. weeks) or short-term (i.e. days or, even, intra-day)? The
choice of position trader, swing trader or day trader will, to a large extent, be determined by the
amount of time you are able to devote to your business. Generally speaking, day traders remain
glued to their monitors throughout the duration of every trade, whilst position traders may devote
as little as one hour a week to the markets. Define your investing or trading style and examine
your beliefs about the markets.
TW: I am a discretionary investor and my style is very . . . (aggressive - which makes me suited
to scalping intraday or, alternatively, conservative – which makes me suited to swing trading end
of day (E.O.D.)).
I understand that I cannot predict the future and I accept that I cannot control the markets.
However I can control myself, which I will do by . . . (adhering strictly to my trading plan that is
detailed, specific, tested and profitable).
JB: I am a long term conservative investor using a combination of fundamental and technical
analysis. I trade probability and weight-of-evidence. If a combination of fundamental and
technical criteria produced a high percentage of successful trades historically, then the potential is
that they will do so again in the future.
I combine the strengths of each analysis to compensate for their shortcomings and produce a
“common sense” approach to investing.
A modest success rate of 50% (half the trades result in a profit, half in a loss) and an average
profit/loss ratio of 2:1 means I will grow my portfolio well. A profit/loss ratio of 2:1 means every
$1 you lose on bad trades is offset by a gain of $2 on the good trades.
As with all successful trading strategies, disciplined position management and defined risk controls
are an important part of my trading plan.
5.5 What are Your Strengths and Weaknesses?
List each of your investing strengths and weaknesses and then specify how you will maximise the
benefit of the former and minimize the damage caused by the latter. This is often easier to do for
other people than it is to do for yourself. Your background may provide some clues. Suppose you
are an ex-fighter pilot who is used to working in a highly disciplined environment and adhering to
a set of very strict procedures. (Potential strength).
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
23
However, the flip side of the coin is that you may also have a need for fun, or an addiction to
adrenalin pumping, nail biting excitement or, even, a subconscious desire to experience fear.
(Potential weakness).
If you are struggling to answer this question, try paper trading for a while and examine each
trade, noting what you did right and what you did wrong. Do this until a pattern starts to emerge
which should reveal your strengths and weaknesses to you.
TW: My primary strength is . . . (allowing my profits to run and closing trades in accordance with
my exit strategy. This contributes to ‘my edge’ and helps me towards my goal of being
consistently profitable in the markets). My secondary strength is . . .
My primary weakness is . . . (wanting to recoup a loss quickly which, almost inevitably, results in
increased losses). The following aspect of my trading plan will help to control this weakness and
prevent losses from spiralling out of control . . . (I have a pre-defined daily stop. If it is hit, I stop
trading for the day). My secondary weakness is . . .
JB: Strengths:
Detailed Trading Plan
Discipline to Follow the Plan
Not Affected by Market Noise (Price Fluctuations)
Not Affected by Media Noise (Journalists & Gurus)
Never “Loved” a Company –I do not become ‘married’ to any position and hold on to
it regardless. I will trade out of anything without attachment or remorse. If it triggers
my exit signal according to my rules, then I exit.
Never “Beat Myself Up” After Exiting a Trade – many novice traders monitor a
company’s share price, after selling it, to see how it performs. They want confirmation
they made the right decision and often “punish” themselves with grief and future
indecision as a result. If you followed the “rules”, let it go and get on with the next
trade.
Never “Trade What I Feel” – One of the worse things that can happen to a beginning
trader is to have a successful trade based on feeling. It means the trader gets
“positive feedback” for breaking the rules and will likely trade that “feeling” again. It
usually doesn’t take novice traders long to realize “if you trade what you feel, you
will lose your money”
Weaknesses:
¾
Too Conservative – limit returns.
¾
Looking at shorter term time frames and trading other securities.
5.6 Are You in the Right Frame of Mind to Invest?
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
24
Your mindset is the key obstacle that lies between you and success in the markets. Have you slept
well; are you fit, healthy and mentally alert? Are you calm and relaxed or are you tired and
distracted by other events in your life?
TW: I will only open new trades on days when . . . (I am rested, relaxed and not distracted by
work or family etc. I will be guided by my trading plan and I will adhere to it rigidly. It will help to
prevent me from making trades that are poorly conceived and executed; i.e. trades that are based
on gut feeing and motivated by fear and/or greed).
I will not trade on days when . . . (I am feeling off colour, hung over, particularly tired or when I
am mentally distracted by other events in my life).
JB: Trading weekly charts reduces the daily stress and tension that can be caused by following the
markets too closely.
It also means I do not have to sit in front of a trading screen intraday. Rather, I make my
decisions in the calm of night after the market has closed. As a result, I then have the time and
freedom to enjoy activities I choose, which in turn puts me in a better frame of mind to invest.
5.7 What are Your Income Targets?
There are numerous reasons for becoming an investor; making money is the one reason that
unites us all. It is important to know your financial targets and to break them down into
daily/weekly bite size chunks. The old adage ‘by the inch it’s a cinch - by the yard it’s hard’,
certainly applies to investors.
Needless to say, if your strategies generate 5% a month, it is counter productive to have a target
of 1% per day. Your targets are not idle fantasies, they must be based upon your back and
forward testing results. (This is expanded upon in sections 10.7 and 10.8, in which we examine
the ‘Success’ ratio and the ‘Sharpe’ ratio).
TW: My financial targets are . . . (to achieve a return of X% per year, which equates to an annual
income of £/$______ without the drawdown on my account exceeding a maximum of Y%. This
equates to an average monthly income of £/$_____, an average weekly income of £/$____ and an
average daily income of £___. Therefore, I have a daily target of Z% of my total equity).
JB: If I quoted a certain figure, no doubt some novices would feel that it is out of reach of their
comprehension right now. In contrast, some other more experienced traders may consider my
figures too conservative.
The important aspect here is that we each need to document our own personal and realistic
income targets, based on our own lifestyle, personality, skill, knowledge base and starting capital.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
25
So, as this document will be in the public arena, I trust you will understand why I prefer to keep
my own income targets confidential.
In our newsletter we select stocks for the notional short term trading portfolio which uses my
proven strategies, incorporating Fundamental and Technical Analysis combined. In Question 12.6
we detail my Short Term rules which we developed for that portfolio.
We received a letter once from a Funds Management company headlined “If you didn’t earn 5.6%
pa on your savings in recent months, then perhaps, just this once, you should”. Needless to say
we were not moved to sign up.
We will aim to outperform the market overall in both portfolios, as measured by the All Ords Index
from the date of commencement of the Portfolio till 30 June each year and results published by
Fund Managers at the end of each financial year. For example, most investors would regard a total
growth in excess of 20% as a good result - and in the range of 30 to 40% would far exceed most
fund managers’ expectations or performance.
For the notional Short Term Trading Portfolio we take advantage of short term profit taking
opportunities using the Berg Profit Taker.
For longer term investors, from time to time we also show how we use virtually identical entry
criteria, then manage the stocks using weekly charts, with the aim of ‘letting profits run’ for as
along as the uptrend continues.
The methods of searching, analysis, selection, position sizing and stop loss management will be
covered later in this Trading Plan template. In our newsletter we provide practical examples of
notional short term trades each week for educational purposes. These trades often last for about a
month on average. They are not stock tips, ‘buy’ or ‘sell’ recommendations.
In addition, we may add a strategy of using Share Purchase Plans (SPP) for part of our notional
Short Term Trading Portfolio. For instance, in their weekly newsletter to their clients on Friday 22
July 2005, one Sydney broker reported for their notional portfolio: “For the 04/05 financial year,
the SPP Portfolio returned 37% on the $20,000 invested. We held $8,000 in cash for the year, and
have therefore reduced our initial investment amount down to $12,000. Had we invested $12,000
in 04/05, the return would have been 54%.
This is mentioned here as an example only and comes with the proviso that we emphasize there is
no guarantee that past performance will be repeated in the market.
The full details of using the Share Purchase Plan strategy, including how to filter for which ones to
select and the timing of when to buy, are as published in John Atkinson's ebook, The AtkinsonGuppy Articles. This ebook includes a joint article by Rod Harper and John Atkinson, as released
originally in Daryl Guppy’s newsletter (www.guppytraders.com) and featured in Daryl Guppy’s
latest book ‘The 36 Strategies of the Chinese for Financial Traders’.
The Money & Risk Management rules which we use for the notional trades in our notional portfolio
are discussed in Chapter 4.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
26
6. Trading Goals
6.1 Setting goals is an essential part of your trading plan as they provide you with a beacon to
work towards, the ability to track your progress and the motivation required to get the job done.
Try to define your goals in terms of your development as an investor, as opposed to purely
financial goals.
If you focus on becoming a proficient investor, the financial rewards are sure to follow just as night
follows day. Then decide how you will achieve these goals and how you will reward yourself once
you do.
The rewards should reflect the scale of the achievement as well as being specific and meaningful
to you.
For example, the reward of a night out should name both the venue and the people you intend to
take with you.
6.2 What are Your Annual Trading Goals?
This is the big picture. Think in terms of the skills and knowledge that you want to acquire
between now and this time next year.
TW: My annual trading goal is to . . . (develop my trading ‘edge’ in order to tip the balance of
probabilities in my favour. At the moment, this comprises three separate elements, namely:
1. I receive coaching from _____ ________, who is one of the best practitioners of the strategies
that I employ.
2. I model the best trading practices, including having a written, clearly laid out trading plan.
3. My strategies are well developed, tested and monitored comprehensively to ensure that they
remain tradable, market sensitive and profitable). I expect to achieve these goals because . . . (in
addition to the coaching, I read xyz magazine and study the words of wisdom from the more
experienced members of T2W).
When I achieve my goal, my reward will be . . . (a two week family holiday in sun drenched
Andalucia, staying in a ‘Cortijo’ with an infinity swimming pool which magically spills over into the
Straights of Gibraltar, set against the stunning backdrop of the Atlas mountains of Morocco).
JB: My goals are twofold – my own personal goals and those I wish to achieve by helping our
readers of our newsletter survive in the market, then to become profitable.
My business partner John Atkinson and I believe in the ‘win-win’, just as the famous author and
motivational speaker Zig Ziglar once said “If you help enough people get what they want, then you
in turn will get what you want.”
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
27
I will begin by providing my responses to questions raised in this Item 6 of the Trading Plan
Template in two ways.
Personally, my aim is to build my Self Managed Superannuation Fund to a sufficient level so that
trading produces annual income to live comfortably in two countries. The possibility of a few years
of below average trading results must be taken into account in my personal Trading Plan.
For our ‘Investing & Online Trading’ newsletter, our aim is to provide our readers the skills and
knowledge they need to acquire to initially survive the pitfalls of the market by protecting their
capital in the first place.
Once we have done that, we then teach profitable trading strategies which, from my own
experience, I know actually work.
I have seen too many novices (and even some experienced) investors come into the market that
may have had success in other ventures. Thinking they can apply their same personality and
character in the market, they wonder “what happened?” when they subsequently fail.
Investing in and trading the market are skills which can and must be learnt. This applies to not
only in stock selection, but also developing strict Money and Risk Management rules and
understanding our own and the market’s mass psychology.
I share author Dr Brett Steenbarger’s view expressed to us when he wrote “If my articles can help
prevent just one blow-up, I shall consider my participation most worthwhile.”
6.3 What are Your Monthly Trading Goals?
Now define your monthly investing and trading goals. Again, avoid financial targets as much as
possible. How will you achieve these goals and how will you reward yourself when you do?
TW: My monthly trading goal is to . . . (achieve consistent profitability every month, with a
Success ratio of 2:1 or more and a Sharpe ratio of 1.5:1 – or more). I expect to achieve these
goals because . . . (I review my performance on a daily / weekly / monthly basis and quickly spot
any problems, should they occur). When I achieve this, my rewards will be . . . (a celebratory
meal out with my partner / family at the ‘New Angel’ restaurant, Dartmouth).
JB: My personal goal is to continue to build the foundation for my Trading Fund. My own goals and
my trading goals for our newsletter notional portfolio in particular are aligned - in that we will
simply follow the rules of my trading system each week.
My aim is to concentrate on remaining disciplined and focused on the tools that have worked well
in the past.
6.4 What are Your Weekly Investing Goals?
Time to get out the magnifying glass and zoom in on the details. Now define your weekly trading
goals. How will you achieve them and how will you reward yourself when you do?
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
28
TW: My weekly trading goal is to . . . (trade every day of the week in accordance with my trading
plan. This will entail taking my stops instantly; sticking to my risk and money management
strategies; following my exit criteria and devoting most of my time to searching for new trades
and choosing only the very best setups).
When I achieve this goal I will pat myself on the back by . . . (buying the digitally remastered
recording of Miles Davies’ landmark album ‘Kind of Blue’).
JB: The Trading Plan which I use for my Long Term Investing Portfolio is predominantly based on
using weekly charts. This allows me to “get on with life” without the need for having to be a
‘screen jockey’ and watch the market intraday or trade in and out on daily ‘market noise’.
By finding low volatility up trending shares which are fundamentally sound and have been ‘bought’
in the correct ‘buy zone’ according to my Trading Plan rules, I increase my probability of success.
However, we know that not every trade will be profitable. Some will be unprofitable and as long as
we are disciplined and cut our losses quickly, then we will progress overall.
In the newsletter we will use John Atkinson’s Portfolio Management Tools to plan and manage the
selections according to the strict Money & Risk Management Rules shown in Chapter 4.
This will ensure that the correct risk profiles are adopted in terms of individual trade risk, sector
risk and overall portfolio risk and that closed trades are analyzed to monitor our performance in
terms of Dr Van Tharp’s ‘expectancy’ (refer to John Atkinson’s ebook ‘The Atkinson-Guppy
Articles’)
We intend to minimize and monitor very closely the risk exposure of our newsletter notional
portfolio. Accordingly, we aim to have only a handful of stocks/shares in this portfolio.
Once a week on a weekly basis, I review the shares selected for my own long term investing
portfolio. For each, I update my stop loss levels, compare the share price at the end of the week
with the stop loss price and decide whether each open position is to be closed or held the following
week.
I check the short term trades in the newsletter using daily charts to review whether my profit
taker /targets or Initial Stop/Trailing Stops have been triggered.
The Short term notional portfolio and strategies described in Question 12 rely on end of day data
which, while taking longer to administer than managing weekly charts, still frees up our time
during the day to work a conventional job or business or to partake in activities of our choosing.
Hence, this monitoring and review activity should only take even a novice investor about thirty
minutes a day and less once experienced.
6.5 What are Your Daily Investing Goals?
Finally, put away the magnifying glass and get out the microscope. On a day-to-day basis, what
are you trying to achieve? How will you measure your progress and how will your hard work be
rewarded?
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
29
TW: My daily trading goal is to . . . (trade according to my plan. Today I will stick to my plan
because it is detailed, specific, tested and profitable. I am confident that I have the self discipline
to adhere to it which, in turn, will ensure that my weekly, monthly and annual goals are met).
Assuming that I stick to my plan, I will pat myself on the back by . . . (having a little ‘night cap’ at
bedtime. Nothing blended - single malt, obviously!)
JB: As noted above, our primary aim of our notional newsletter Portfolio is to find and manage
low volatility, fundamentally and technically sound shares in rising up trends. We will also include
some shares selected by ‘professional’ analysts if they also match my entry criteria.
My weekly goal is to remain disciplined and not to look at how daily market ‘noise’ may affect the
shares in my Long Term Investing Portfolio, as I manage it using weekly charts .
For our notional short term trading portfolio we will monitor end of day data and determine if any
stops have been triggered or profit targets met and list any actions for the next day.
Our daily goals will include checking our:
Charts to see if any shares on our ‘qualified’ watch lists have shown an entry signal
Emails to see if our broker has identified a new potential Share Purchase Plan (SPP)
which fits our Trading Plan Rules.
If so, we will check:
If adding an extra position will comply with our total portfolio money management
rules in Chapter 4
The closing date of any entitlement (for SPP’s)
If we have funds available in our notional portfolio to open the position or make the
initial SPP entitlement purchase
If and only if all ‘planets are aligned’ to allow us to trade with ‘weight-of-evidence’
according to our Trading Plan, then we will take action to enter
If any stocks/shares have generated an exit signal by our exit rules, we will also take action and
‘sell’ the following day. (Refer 11.8 and 11.9)
It is vitally important to develop a mechanized system of trading and investing.
Our aim is to operate in a structured and disciplined manner, without allowing interference of any
subjectivity and emotion.
This is developed through paper trading initially and then by repeated practice with real funds in a
systematic process. (Refer also 9.3 below).
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
30
CHAPTER 3
MARKETS &
TOOLS of
the TRADE
By Tim Wilcox, Jim Berg & John Atkinson
•
Markets, Instruments & Timeframes
•
Tools of the Trade
•
Before The Market Opens
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
CHAPTER 3.
31
MARKETS & TOOLS of the TRADE
7. Markets, Instruments & Timeframes
7.1 Which Markets will you Trade or Invest?
Decide upon the market you wish to invest and trade in; the instrument(s) that are available
within that market and the reasons for your choice.
As a general rule of thumb, professional investors and traders tend to restrict their focus to a
limited number of markets and instruments. By contrast, novice traders tend to trade index
futures one day, currency pairs the next and exotic sounding commodities like pork bellies the day
after that, etc!
TW: The instruments that I will trade are . . . (U.S. stocks in the evening after work because good
opportunities exist in the 7-9pm session. They also provide excellent liquidity, volatility, tight
spreads, fast fills, low commissions and no stamp duty).
JB: My answers here again are twofold – those for my own personal trading activity and those for
the Trading Plan for our newsletter. They are very closely aligned except that I sometimes also
employ short term leveraged trading to complement the medium to longer term trend trading ‘buy
and hold’ strategy for my own Long term Investing Portfolio.
The overall basis of my strategies is to select shares which:
Are temporarily oversold in a rising uptrend and
Have given an entry signal using my documented rules.
If ‘funds’ are available, the aim is to include them in the portfolio for hopefully weeks, months or
perhaps years, demonstrating to our readers that they do not have to be glued to a screen all day
to be successful in the market.
The precise duration will be determined by:
Whether the choice has been at the outset to manage the share with daily charts, tighter
stops and short term profit taking or with weekly charts and lower stop losses, to ‘let
profits run’.
The price action of the share when it eventually provides an exit signal.
I use the tools I have learned or developed myself over more than 25 years of investing and
trading - and which I teach in my weekend Boot Camp seminars, my ‘Trading Strategies with JB
Charts’ and ‘Trading Strategies with Metastock’ Home Study courses and through our newsletter.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
32
The market that I predominantly trade and the one we will use for our newsletter notional portfolio
is the Australian share market.
However, in time, we also plan to feature stocks from other markets (e.g. USA) to demonstrate
that the principles are not market specific and may be used in many other markets around the
world.
If a stock is fundamentally sound and has positive market sentiment behind it, then the market
dynamics should be similar - irrespective of where the market is located.
The beauty of learning fundamental & technical analysis; money and risk management; personal
and market psychology is that once you have learned and practiced the principles, then it usually
doesn’t matter which market you look at – the broad principles remain the same.
7.2 Which Instruments Will You Trade or Invest?
Will you confine yourself to a basket of stocks or will you invest or trade anything and everything
on the XYZ exchange? If you trade futures, how many different markets will you trade, and why?
If you are a forex trader, how many currency pairs will you trade, and why?
TW: The quantity of stocks / futures contracts / currency pairs that I will trade will . . . (not
exceed X and be determined according to their liquidity, i.e. a minimum daily volume of 2 million
shares, and according to their volatility, i.e. an average minimum daily range of $1.50).
JB: I prefer to focus my personal investing in shares of low risk companies, those which are
monopolies /near monopolies and are all in a rising trend and sector. We will largely mirror this
approach in the newsletter notional portfolio for most of our selections.
To ensure we can easily enter or exit the market and to avoid being ‘whip-sawed’ in and out of
positions unnecessarily, we will concentrate mainly on those Australian shares which fit my
fundamental and technical analysis criteria, provide sufficient liquidity and do not exhibit excessive
volatility.
7.3 Which Timeframes will you Trade or Invest?
Hopefully, you have decided what sort of investor or trader you are or want to become, i.e. an
intraday, swing or longer term position investor. Now you need to focus in on your timeframes
within the category of your choice. Be very clear in your own mind about the number of
timeframes you use and why you use them.
For example, a day trader may use a 1 minute timeframe to enter a trade, a 5 minute timeframe
to exit a trade and a 15 minute timeframe to help determine the trend throughout the duration of
the trade.
TW: As a swing trader, I will use . . . (daily charts to determine the trend; 10 minute charts to
enter and exit positions and 60 minute charts to monitor my open positions).
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
33
JB: For both my own investing and for our newsletter notional portfolio, my analysis starts with
weekly charts to determine the major trend. I then target RSI (7) Oversold ‘Alert’ conditions within
that rising market, as explained further in Question 12.
By the time I get down to the ‘buy’ decision, for my own personal trading and the newsletter
portfolio, I use daily charts to time my entry.
We emphasize that before a stock/share is added to our notional Portfolios, there are many
hurdles that the potential candidate must get over. To be selected it should:
Match our Fundamental AND Technical Analysis rules AND
Satisfy our money management rules including:
Individual trade risk
o
Sector risk and
o
Total portfolio risk AND
Have given a ‘buy signal’
Then and only then will we take this as suitable weight-of-evidence to take action.
8. Tools of the Trade
8.1 Which Financial Vehicle will you Use to Trade or Invest?
Whichever vehicle you use to trade; Shares, Spread Betting, Contracts for Difference (CFDs.) etc.
understand fully the pros and cons associated with your choice. This applies to Spread Betting
especially.
Without question, it is a very popular financial product that is ideal for novice traders, but it does
have its drawbacks. For example, it is almost impossible to day trade profitably using this trading
vehicle.
TW: My choice of financial vehicle is . . . (Spread Betting because I can open an account with just
£100, trade just 1p per point and profits are currently tax free in UK. However, I understand the
limitations of this product and that it is best suited to swing trading).
JB: There are hundreds of ways of trading the market. My own personal choice of financial vehicle
is to use ordinary shares for both long term investing and short term trading. My business partner
John Atkinson also sometimes trades pattern trades with lower priced shares for leverage for his
short term trading.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
34
Full details on my Short term trading strategy are provided in Question 12.
Sometimes I also use CFDs for short term trading. Due to their leverage, CFDs have the effect of
luring unprepared novices with the potential of increased profits on to the ‘fast track’. While this
may eventuate for some experienced traders, what is not realized until it is often too late is that
leveraged instruments work both ways. So losses have the potential to also be magnified and at a much faster rate.
We include this warning as our goal in our ebooks and newsletter is to warn our readers of the
market pitfalls as well as providing education on successful strategies. We have seen too many
‘wannabe’ traders have their portfolios cavitate very quickly. One internationally renowned trader
said “Trading CFDs is like driving home at full speed through all the red lights – and hoping to get
home safely”.
The need for strict money & risk management coupled with very good personal psychology and
analysis skills becomes even more paramount when trading leveraged instruments. They are the
domain of very experienced traders only.
So, for our newsletter portfolios we will concentrate only on investing and trading in equities as
many of our readers may be new to the market or may not have yet learned how to consistently
make profits investing in stocks/shares.
By finding low volatility up trending shares which are fundamentally sound and have been ‘bought’
in the correct ‘buy zone’ according to my Trading Plan rules, we increase our probability of
success. However, we still know that not every shares trade will be profitable. Some will be
unprofitable but as long as we are disciplined and cut our losses quickly, then we will progress
overall.
8.2 Which Broker and Trading Platform Will You Use to Trade or Invest?
Your broker and trading platform are critical to your performance, just as Roger Federer’s tennis
racket or Johnny Wilkinson’s rugby boots are critical to theirs. Both players would perform well
with any old kit, but choosing these primary tools with great care helps them to achieve consistent
sporting excellence. As a starting point, the choice of broker is likely to be determined by the
following six things:
1.
The instruments that you wish to trade. If, for example, you wish to trade U.S. stocks, which
broker offers the largest universe of shares and how do their spreads / commissions compare with
their competitors?
2.
The vehicle (or financial product) you use to trade the instruments of your choice. Spread
betting, CFDs, options, futures, forex or direct access?
3.
The size of your account. If you have only limited capital with which to fund your trading,
you are not going to be able to open a Patten Day trader (P.D.T.) account with a direct access
broker. Furthermore, the choice of brokers offering CFDs is likely to be limited. Spread Betting
may be your only viable option and is where many new traders start
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
35
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
(JB: This may be so in UK but in Australia most authors suggest traders become confident &
profitable in investing and trading shares for a few years before venturing into leveraged
instruments).
4.
The platform you use to trade. This is usually the one supplied by the broker. It must offer
the features that you require and you must be comfortable using it.
5.
The level of support and customer service offered by the broker. Check out the reviews on
T2W to see how the broker you propose to use fairs. (Editor: UK site)
6.
Your level of experience. Many professionals advise the novice trader against opening an
account with a futures broker and, say, starting to trade the e-mini S&P. Choose instrument(s)
and a broker that you can cut your teeth on and minimise the risk of losing your shirt!
TW: My choice of broker is . . .(Fleece’Em.com because they offer the universe of stocks that I
require with competitive spreads; they have won numerous industry awards for their lightning fast
trading platform and their customer service is second to none).
JB We acknowledge that readers of this ebook and our newsletter will have their own preferences
for the broker which they choose to use.
Figure 3.1 Ronin Asset Management
We
are
a
Corporate
Authorised
Representative of Avestra Capital Pty
Ltd. Ronin Asset Management is also a
Corporate Authorised Representative of
Avestra.
Based
in
Sydney,
Ronin
Asset
Management provides global advice &
execution through state of the art trading systems. They offer advice on Australian and
International Equities, Options, Futures, Exchange Traded Fund’s (ETFs), Contracts for Difference
(CFDs), Margin Foreign Exchange and Investment Property purchases.
Nicholas Cooke, Head of Operations at Ronin Asset Management says:
" In life you get what you pay for. Don't leave your financial future to chance. We're here to help
advise you along the way. At Ronin we believe that to achieve the most out of life people need to
have dreams and passions. Our purpose as an organisation is to support our clients in defining and
achieving their financial goals.
At Ronin we understand the importance of income and asset creation and we equally understand
the importance of risk protection. Our expert general financial advice and specialist knowledge
allow our private advisory clients and high net worth individuals to navigate the Global Financial
Markets in all conditions. We have strong, lasting relationships with our clients, providing our
financial expertise and advice to deliver a superior offering and customer experience."
You may contact Nicholas Cooke at Ronin Asset Management by:
Email: [email protected] or
Phone (Australia): 1300 334 626
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
36
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
8.3 Which Software & Data Feeds will you Use to Trade or Invest?
If your trading decisions are based upon technical analysis (T.A.), make sure your data provider
and charting platform has the features you want but is not charging you for fancy gizmos that you
do not need and will not use.
TW: My choice of data feed is . . . (SlowQuote.com because they provide data for the instruments
I want to trade, whilst providing the option to upgrade, giving me access to other exchanges with
real time data in the event that my trading style and strategies change).
JB: Again we acknowledge that readers of this ebook and our newsletter will have their own
preferences for the software and data feeds which they choose to use.
Personally, we use our JB Premium Charting /JB Data
Indicators built into the program for user friendly charting.
package which has my JB Volatility
(Metastock users can add my JB Volatility Template to view my indicators on their screen)
Figure 3.2 Scanvest
Figure 3.3 MarketScan
Scanvest (Figure 3.2) is a useful tool for back testing trading systems on historical data - before
traders and investors commit real funds.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
37
I also use MarketScan (Figure 3.3) to simply and easily filter stocks based on my fundamental
analysis criteria. Both these scanning programs are discussed further in my ebook ‘The Stock
Trading Handbook – Fundamental & Technical Analysis Combined’.
Pro Trader and Bullcharts are also available at our site, with more detailed descriptions presented
there, including a zip file on the latter in our Free Downloads Section.
Both these programs feature easy to use and powerful explorations.
Bullcharts includes indicators designed by many high profile trader-authors.
Protrader includes a useful search which reveals all stocks which have broken through resistance
lines drawn previously by the user.
9. Before the Market Opens . . .
9.1 To begin trading without doing your homework beforehand is a bit like embarking on that car
journey from John O’Groats to Land’s End mentioned earlier without checking the oil and fuel
levels before setting off. It is essential to undergo a daily pre-market routine to ensure that you
are prepared fully for the trading day ahead.
9.2 What is Your Daily Pre-market Routine?
As the question implies, these are the things you do every day to ensure that when the time
comes to ‘pull the trigger’, the probable outcome is in your favour.
TW: My daily pre-market routine comprises five key areas, namely:
1. To analyse and log yesterday’s trades.
2. To review any open positions and update targets and stops.
3. To assess today’s market conditions and plan accordingly.
4. To plan the day ahead, hour by hour.
5. To make an initial selection of possible instruments to trade.
JB: Refer 9.3 below
9.3 Have You Analysed Yesterday’s Trades?
Have you completed your analysis of yesterday’s trades, logged them and updated your journal?
Did you adhere to your plan and, if not, what effect does this have on your trading activity today?
In other words, your ability (or otherwise) to stick to your trading plan yesterday, should
determine your trading activity today.
TW: Each day, I will ensure that yesterday’s trades are . . . (analysed and logged and that my
trading journal is up to date. Additionally, I will check to ensure that I adhered to all aspects of my
trading plan).
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
38
In the event that I fail to adhere to my trading plan . . . (I will amend the new day’s trading
activity in accordance with the discipline procedures detailed in section 14.3 of my plan).
JB: For my own personal trading, most of my analysis is done after the market closes and takes
only a few minutes. I update my database, analyze any new positions entered or closed that day
and log them into my trading journal.
If trading funds are available, I scroll through my watch lists to find new entry signals that would
need to be acted upon the following morning.
The primary aim of our newsletter portfolios is to function as paper trading exercises. This shows
our readers how they can adapt my proven systems for long term investing and short term trading
strategies for their own style and personalities.
For my long term notional portfolio I:
1.
Select just a handful of fundamentally strong shares which are trending higher without
excessive volatility
2.
Calculate the applicable Money and Risk Management factors (refer Chapter 4) to optimize
individual trade risk, sector risk and combined portfolio risk
3.
Manage this portfolio on a once a week basis without the need to be a ‘screen jockey’ glued
to a trading screen.
4.
Sell the losing positions at a minimal loss to ‘cut losses short’ if my Initial Stops are
triggered (refer 11.8)
5.
Hold on to the winning positions to ‘let your profits run’ and only sell them when an exit
signal is generated (refer 11.9).
6.
By carrying out items 1 to 5 in a systematic structured fashion, I have created a successful
and disciplined weekly pattern, without letting emotions affect the decision making process.
This takes me about 15 minutes a week, once I’m fully invested.
Consequently, for this portfolio there is no need to carry out daily activities associated with the
market. As predominantly an ‘investor’ rather than a ‘trades’ I recognise that this strategy means I
may miss some short term profit taking opportunities.
However, I also know that this reduces stress levels, emotional decisions and demanding workload
from ‘screen watching’. It also allows me to stay with longer term trend trades for the long haul,
without being ‘whipsawed’ in and out.
From time to time, we review the performance of a notional long term investing portfolio in the
newsletter – compiled from stocks selected from our short term portfolio. The aim is to
demonstrate to our readers that they too can ‘get on with life’ and still thrive in the market overall.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
39
For those preferring to trade in shorter time frames of a few days to a few weeks, our Short Term
Trading portfolio provides additional education on this subject (refer Question 12.6).
Again, we carry out a similar system of the six steps shown above, though using an end-of-day
timeframe and with tighter stop losses.
For our notional portfolio in the newsletter we:
9
Review open positions (see 9.4) at the close of the week.
9
Update our records of each notional trade once a week and post them in that
week’s newsletter
9
Examine potential notional trades from our watch lists on the weekend prior to
the following week’s Edition of our newsletter.
9
If a stock/share is selected which also matches all my ‘buy’ criteria and if funds
are available, a notional entry may be taken on the day after a blue bar entry signal
is generated during the week (refer Question 12), provided that this is no higher than
the high of the day of the entry trigger
9
If a stock/share has triggered an exit condition, the trade will be exited with
discipline and the trade records updated accordingly.
While the stock selection process may vary, it is of note that my blue bar entry volatility based
signal and Initial Stop Loss are the same for both our notional long term investing and for our
short term trading portfolios.
The main difference in strategy from then on mainly relates to the exits – the level of the trailing
stop loss position and whether or not we take profits using the Berg Profit taker (refer Questions
11 and 12).
9.4 Have You Any Positions Open?
If it is not clearly laid out in your plan to hold positions overnight, don’t! However, if you are a
swing or position trader, you may well have some open positions.
TW: If I have positions open in the market . . . (I will update targets and stop losses and confirm
that the reasons for entering the trade in the first place are still valid).
JB: I am a trend trader which means I keep positions overnight and hold them for as long as
possible, according to my rules. All open positions are analyzed for exit signals. My personal stops
for my own trading and investing are end-of-day or end-of-week respectively, so action needs to
be taken the following day, or on Monday for weekly charts.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
40
For my personal long term conservative stock investing I am prepared to wait for one week of
closes below my Initial Stop Loss and two consecutive weeks of closes below my Trailing Stop
Loss before taking action (refer 11.8 and 11.9).
For shorter term trading I exit once prices close after one day’s close below my Initial Stop and
two consecutive days, below the trailing stop i.e. not weeks. I have discovered, from much
back-analysis, that by giving stocks/shares this amount of extra room, they may become oversold
and bounce back from this level to resume their up trends. If not, I exit without ‘arguing’ with
myself and the market.
Not all traders, particularly novices, may have the same discipline. They may think “I can’t sell it
now it’s so far down” if prices continue to fall.
In acknowledging this, when setting our stops for the long term investing notional portfolio we also
report from time to time on the action of using the equivalent of the Conditional Order Stop
Loss Orders facility (Refer 8.2).
For those traders or investors who choose to use conditional stop loss ordering, then if at any time
during the week the stock price action falls and trades below their nominated stop loss level, then
the notional trade may be ‘closed’ automatically at a price as close as possible to their predetermined stop loss level.
This allows them to carry on their day to day activities, confidently knowing that if their exit
conditions are triggered, then their Conditional Stop Loss Order(s) will be executed by a third
party. These traders look upon it as a type of insurance.
The main advantages in setting their stops this way are that:
9
Actually exiting after a stop has been hit is one of the most difficult actions to do for
most investors and traders. They look for excuses to stay with the trade, in the hope that it
“will go back up”. However, unfortunately it only takes one large loss to offset many small
profits –- and most large losses usually start out as small losses that have been allowed to
run uncontrolled! Do that several times and one’s portfolio looks sick very quickly.
9
Having a Conditional Ordering facility to execute the stops on their behalf removes the
ability for them to look for excuses. It helps protect them from themselves - and therefore
the potential risk of much greater losses.
9
There is an old stock market cliché that “the bulls go up the stairs but the bears go out
the window.” This means that prices may climb a few percent over several weeks but any
such gains can be totally eliminated in days, or sometimes within minutes.
9
Using conditional stop loss orders means that they exit at or close to their nominated
price level. If prices continue to fall, they do not have to wait until the end of the day or even
up to 2 weeks later before taking action.
Correspondingly, if the uptrend continues, then they can also observe from the sidelines and
decide whether to rejoin at a slightly higher price, provided their entry conditions are met.
However they need to remain aware of the potential pitfall of being ‘whipsawed’ in and out.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
41
Through a few notional trade examples in the newsletter we showed that in a rising bullish market
there have been occasions whereby the use of intraday conditional stops have resulted in
premature closing of the trade - as some of these stocks have rebounded during the day and
continued their rise. A trader using conditional stops at that time would have had two ways to look
at this:
i)
The –ve viewpoint- disappointment of being ejected from the trade too early
ii)
The +ve viewpoint – pleased that his insurance policy was working and protecting him in
case of a sudden downturn.
For those who used intraday conditional stops in correction in recent years e.g. May 2006, August
2007 and January 2008, their insurance really kicked in as they would have got home from work
(or the golf course etc.) and found that many of their conditional orders to sell if prices hit a
certain value would have been triggered. Their trades would have been closed by their conditional
stop loss facility.
Those who waited for closes below stop loss levels during those months may have experienced a
different level of emotion than their counterparts who use conditional stop loss orders and who
had closed their trades much sooner.
The real test then came for those who found their stocks trading well below their stops. For the
conditional stop loss user, they did not have to go through this test as their trades had already
been closed days earlier. There are advantages in both approaches.
The main lesson here is that we each need to work out, as part of our own personal trading plan,
whether we use:
⇒
Weekly charts and weekly stops or
⇒
Daily charts with closes 1 or 2 days below the stops or
⇒
Weekly or daily charts with intraday conditional stops
Traders and investors who know they have a ‘freezing problem’ may make the decision to use
intraday stops regardless. They know from personal experience that they would rather have
someone else act on their behalf at predetermined levels than go through the anguish of not being
able to pull the trigger themselves when they are put to the real test.
For those who choose conditional stops, then they need to be aware that there is one significant
risk other than the possibility of early closing of the trade.
If there are very few buyers queued in the ‘bid stack’, then there is a real possibility that there
could be an unnecessary and artificial cascading of prices, caused by electronic broker’s computers
dumping stock in a domino effect.
In the Australian market in which John and I trade, since late 2003 some prices have been seen to
plummet literally 10 or 15% or more in hundredths of a second ……… and subsequently rebound
often only minutes later as bargain hunters chase up prices.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
42
John Atkinson wrote at length about various Exit Strategies and included conditional exits in his
original work for Daryl Guppy’s newsletter ‘Tutorials in Applied Technical Analysis
(www.guppytraders.com). These are now re-republished in his ‘Atkinson-Guppy Articles’ ebook.
John called this computerized cascading phenomenon “avalanche selling”. An extract is shown in
Figure 3.4 below.
He showed that he found a major advantage in using a ‘hybrid’ service - so that humans actually
place the sell order once the audible automated conditional stop trigger alarm goes off.
Their experienced staff can monitor the screen and see if automated avalanche selling is occurring
or not - then decide whether or not to place a sell order on your behalf, depending on your
instructions.
When such avalanche selling occurs, it can often be recognized later from end of day charts, due
to the strong rebound from an out-of-context extremely low price for the day. Those traders who
have access to the ‘Course of Sales’ of all trades placed for the day may confirm this phenomenon.
Figure 3.4 Avalanche Selling - CTX
For example, Figure 3.4 shows extreme volatility in stock CTX on Thursday 11 December 2003 . In
one day nearly three months of price increase were wiped out in minutes as it dropped 18% from
a high of $4.58 to a low of $3.75. It then rebounded just as strongly by 15% to close at $4.32 the
same day. This is a kangaroo tail pattern.
For those wishing to read more details on the subject of conditional ordering, Max Lewis’ ebook
‘Conditional Order Trading Strategies’ (COTS) is available at www.Sharetradingeducation.com.
For educational purposes, in our newsletter we will sometimes compare the outcome of exiting
using conditional orders and my preferred method.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
43
As mentioned above, for my own personal trading I prefer to wait for close(s) below the stop loss as experience has shown that I can confidently exit with discipline if my exit conditions occur.
9.5 What are the General Market Conditions?
Are there any major news stories impacting the markets? What are the index futures doing? Are
there any key economic reports due out and at what time etc.?
TW:Before trading, I will check . . . (1. index futures to see if they are flat, trending up/down or
mixed.
This is a positive/negative sign because . . . 2. to see if any key economic reports are due to be
released and at what time – i.e. Michigan Sentiment. 3. to see if any key personnel are due to
make announcements / speeches and at what time – i.e. company C.E.Os. or Alan Greenspan
addressing Congress etc).
I aim to trade the market reaction to these reports and speeches. Therefore, I will not trade for . .
. (the first 15 minutes following the speech / announcement and observe the reaction to it by the
market. This will help to ensure that I ‘trade what I see and not what I think’).
JB: I take note of major news events and key economic reports, released during the previous 24
hours that could affect my trading.
Before the local markets open, I check the U.S. markets to determine the extent of their moves
and which sectors could affect our markets and my open positions through the day.
For our longer term notional investment portfolio, we need to examine the bigger picture.
Accordingly we will look at weekly charts and the major trend in order to check that there are
higher highs and higher lows; prices are closing above the moving averages and that the moving
averages are rising.
Some investors choose not to ‘buy’ on Monday if the Dow Jones Index has fallen more than 100
points on the previous Friday in the USA.
Some investors also consider the following rule, as applied by Alan Hull in his Active Investing
Strategy, such that they will open new positions ONLY if the 10 and 30 day moving averages on
both charts (the All Ords and the S&P 500) are NOT crossed to the down side.
“These act as a traffic light, if they are both crossed to the down side, we STOP and go no further it is not a week to open any new long positions.” (www.alanhull.com).
The purpose of this rule is to protect investors from ‘buying’ in a falling market and from trying to
swim against the tide.
This rule is not part of my own investing strategy.
I use a comparison between the All Ordinaries Index and the S&P500 Index, monitoring whether
they are in a rising or falling trend on a weekly chart. A falling trend was identified in early January
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
44
2008 and the newsletter notional portfolio was closed on January 7th, 2008 before the substantial
decline in prices.
9.6 What Will You Do Today – Hour by Hour?
If you do not plan each day hour by hour, chances are that you will just drift. This could result in
missed opportunities or, worse still, departing from your plan and taking ‘boredom trades’.
Providing structure to your day encourages discipline, maintains focus and ensures that your work
time is used to maximum effect. Be sure to factor in regular breaks from your computer with
specific times for eating to discourage snacking!
TW: As a U.S. day trader, I have a daily diary which . . . (covers the market hour by hour. Before
12.00 noon GMT is free time for relaxing, checking out threads on T2W etc. 12.00 noon – have
lunch, 1.00pm – undertake the tasks outlined in parts 9.2 to 9.5 of my plan. 2.00pm – prepare for
the open; search for opening gap plays and load alerts. 2.30pm – trade the open. 2.45pm –
search for potential
3 o’clock reversal plays. So on and so forth throughout the rest of the day).
JB: One of the major reasons I became a full time trader was to thoroughly enjoy the “lifestyle”
that is possible - become independent, no retirement age, set my own hours, work from home, a
boat, or a resort in any country in the world. I designed trading strategies that suited my
personality and philosophy and that could be used by people with real, 9-5 jobs. Many people
believe they need to retire to trade successfully.
I wanted to teach people that they could download their data in the evening, analyze the markets,
prepare for trading the following day and still spend the majority of the evening with their family,
or other activities of their choosing. Longer term, conservative investors do not need to plan their
day around the markets, watching a screen hour after hour.
9.7 Which Instruments are on Your Watch List?
Finally, you can start to look for today’s trading opportunities. Scan your universe of instruments
and split the results according to the strategies that you employ. For example, if you are a day
trader, you may have a ‘retracement’ strategy to trade the open, followed by a ‘breakout’ strategy
after the first half hour or so and, finally, a ‘reversal’ strategy for the evening session.
TW: I will scan my universe of instruments in order to . . . (select candidates for the strategies
that I employ. Auditory and/or visual alerts will be set for entry and exit signals). I will update the
charts for all the instruments on my watch list showing . . . (key resistance and support levels,
yesterday’s open, high, low and close etc).
JB: The watch lists I use mainly for our newsletter notional portfolio are the same ones I use for
my own personal investing, as follows:
1)
Rising sector (weekly). Rising Share (weekly). Meets fundamental criteria
2)
Rising share (weekly), RSI (7) oversold and Volatility Entry (daily)
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
3)
Monopolies/near monopolies - Rising share (weekly), RSI (7) oversold and
Volatility Entry (daily)
4)
Takeover Targets - Rising share (weekly), RSI (7) oversold and Volatility Entry
(daily).
5)
Expert’s Picks - Rising share (weekly), RSI (7) oversold and Volatility Entry(daily).
45
These Watch Lists are included, along with others and my JB Volatility Indicators as part of my JB
Premium Charts and JB Combo packages.
They are not buy recommendations. Rather, they are my first starting point of reducing the
number of potential stocks in which to trade or invest. I then apply my Technical Analysis criteria,
as discussed in this ebook and our newsletter.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
46
CHAPTER 4
MONEY and
RISK MANAGEMENT
By Tim Wilcox, Jim Berg & John Atkinson
• General Risk Management
• Specific Risk Management
• General Money Management
• Specific Money Management
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
CHAPTER 4.
47
MONEY and RISK MANAGEMENT
10. Risk & Money Management
10.1 This is the crux of the whole document. Failure to apply sound risk and money
management principles will, almost certainly, be financially ruinous. First of all, let us define the
difference between risk and money management. Risk management focuses on the steps
necessary to minimize losses by assessing market conditions, risk-reward, probability and the use
of stop loss orders etc.
Money management, on the other hand, focuses on the steps necessary to maximize profits by the
use of trailing stops and adjusting position size etc. This is summed up perfectly in that giant of
trading axioms: ‘cut your losses short (i.e. risk management) and let your profits run (i.e. ‘money
management’).
GENERAL RISK MANAGEMENT
10.2 What is Your Attitude Towards Risk?
This may seem an odd question, but it is a good starting point to ensure that your feelings about
risk are compatible with your trading style. David S. Nassar, in his book ‘How to Get Started in
Electronic Day Trading’ has this to offer on the subject:
“Think of the stock market as a nuclear reactor – the more you are exposed to radiation the
greater the chance of getting burned. Market risk is measured by the amount of time you are in
the market. It could be seconds, minutes, hours, days or weeks. The longer you are in the market
the greater the chance something will go wrong. Therefore, the trading style that keeps you in the
longest can also be the most risky”.
Many traders will totally disagree with this and feel much happier and sleep better at night by
holding medium to long-term positions. For them, trading momentum plays in volatile Nasdaq
stocks intraday carries far too much risk.
TW: My attitude can be summed up as being . . . (risk averse and always seeking to minimize risk
wherever possible. I will achieve this via diversification and adhering strictly to the risk
management regime contained in this section of my trading plan).
JB: I am a long term conservative investor minimizing risk through diversification and strict risk
management rules.
10.3 What is the Overall Market Risk?
Now decide the maximum amount of capital that you will put at risk at any one time. Be prepared
for the worst. In the event of another market crash like ’87 or a terrorist attack like 9/11, having
too much of your equity committed to the market could result in catastrophic loss.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
48
Many traders will not risk more than 1% on any one trade, with a maximum exposure on all open
positions of 5% in total. In other words, if all the positions you have open at any one time were
stopped out simultaneously, the drawdown on your account would not exceed 5%. Nasty, but not
disastrous.
TW: My maximum exposure in the market will . . . (not exceed a combined total of 5% of my
capital at any one time).
JB: Speaking from very hard personal experience, in his ebook ‘Ten Secrets to Profitable Online
Stock & Share Trading’ John Atkinson says:
“What we also failed to realize was that instead of spreading our risk, we were magnifying our
risk. For instance, using a stop loss of 2% portfolio risk, let’s say a trader has ten positions. That
means if the market takes a sudden dive and all stops are triggered, they risk losing 20% of their
entire portfolio value.
Expand that out to twenty positions, then 20 x 2% = 40% of their portfolio is at risk. It can
happen – it did happen. If you freeze or have margin loans, the destruction can be far worse….
Dr Elder refers to the 2% risk rule as protection against shark attack and extends the concept
further to a 6% rule to protect against piranha attack i.e. to close out the whole portfolio if it drops
by 6% in the past month.
Taking this to its logical extension, Dr Elder describes how, using this strategy, also limits traders
to three positions (at 2% risk) to start off with, until some of them rise into profit, before opening
any additional positions.”
My own personal maximum risk is 2% on any one trade and maximum exposure on all open
positions will not exceed 6%.
For our notional newsletter portfolios which have a notional starting value of $100,000, we have
elected to reduce the risk on any one trade to 1%. Some readers may choose to adopt a different
value e.g. in his books Daryl Guppy also uses a maximum of 2%. Other investors with larger
portfolios may choose to reduce this to 0.5%.
The maximum exposure on all combined open positions will not exceed 6% of each respective
portfolio.
10.4 What is the Sector Risk?
Anyone who saw the fictional television drama ‘The Man Who Broke Britain’ (09/12/2004 on
BBC2) will recall what happened to the city trader who was over extended in a bank that traded oil
futures very heavily. She, and the bank, did well until terrorists blew up the world’s largest oil
refinery. Oops! No fat cat bonus for the city trader and, ultimately, no job. One way to control
sector risk is to limit the number of positions in any one sector.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
49
TW: My maximum exposure in any one sector will . . . (not exceed a combined total of 3% of my
capital at any one time).
JB: For the notional long term investing portfolio, our maximum exposure in any one sector will be
30% of the total ‘capital’. As clarification, this is not comparable with the 3% mentioned by TW as
he is referring to the total risk and not the total purchase price. We monitor and check that the
30% sector criterion is not exceeded by using the Atkinson Portfolio Planner prior to ‘purchase’.
10.5 What is the Broker and Hardware Risk?
Suppose your broker goes down and you have no way of closing your positions. How will you
handle this scenario? Similarly, what will you do if you need to take action when (not if!) your PC
crashes?
TW: My main broker is . . . (FleeceEm.com and my back up broker is Doolittle & Dally. In extreme
circumstances when my main broker is down, I have the option of hedging my positions with my
other broker).
In the event that my PC crashes . . . (I have a back up PC with a dial up modem connection and all
my data is backed up daily onto CD. Additionally, I always have my mobile on and fully charged
while trading, with numbers of the key departments of both brokers stored in the memory).
JB: Personally I trade through the internet and have the option of phone orders as a backup. All
data/trading information is located on two computers and I have a mobile phone for emergencies.
In 9.4 we detailed how we will also report, from time to time, on outcomes of using the equivalent
of a Conditional Stop Loss Ordering facility.
John has found that unlike many other conditional stop loss brokers who rely totally on full
automation, the use of manual intervention helps protect clients from having their shares
automatically dumped unnecessarily in times of computerized stop loss selling.
As described in 9.4, John Atkinson has termed this ‘avalanche selling’ in his two ebooks, the
‘Atkinson-Guppy Articles’ and ‘ 10 Secrets to Profitable Online Stock & Share Trading’ .
10.6 What is the Strategy Risk?
The markets are constantly changing and a strategy that was profitable last month / year may not
be profitable next month / year. There are ways of monitoring this that are discussed in unit 13
‘After the Market Closes . . .’ However, as a long stop, prepare for the ultimate risk – the one that
probably will happen sooner or later.
Namely, your once brilliant and hugely profitable trading strategy no longer works! Control this by
measuring the largest % drawdown on each strategy employed. Multiply this by a factor of 1.5 to
2, and if the drawdown ever exceeds this figure, STOP trading the strategy immediately!
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
50
TW: I will monitor the drawdown on all my trading strategies. In the event that the drawdown
exceeds 10%, I will stop trading immediately and review my trading strategy.
JB: As discussed in 10.3, our notional portfolios will be ‘closed’ if the drawdown of the total
portfolio exceeds 6% from its most recent closing high in any one month. If this occurs, we watch
the market from the sidelines with our remaining notional ‘capital’ protected - until we consider
that market conditions have improved.
SPECIFIC RISK MANAGEMENT
10.7 What is the Probability of a Successful Trade?
When it comes to assessing the specific risk associated with a proposed trade, most traders focus
only on the risk-reward ratio. Unfortunately, this is somewhat meaningless unless probability is
factored into the equation. Here is the reason why: suppose one determines the risk-reward ratio
to be 4:1 – a gain of 80 points while only risking 20. In isolation, this looks excellent. However, if
the probability of a trade being successful is only – say 20%, i.e. the probability of a 20 point loss
is 80%, suddenly the proposed trade does not look quite so attractive!
To assess the probability of success of a trading strategy we must start by defining the trade
setup. This needs to be extremely precise, unambiguous and crystal clear. This is vital in order to
spot the setup in real time, trading with real money.
Once the setup is defined, it can then be back and forward tested to see if the probability of its
success outweighs the probability of its failure.
To complicate matters, there are numerous variables that will, between them, influence the
outcome. Try to isolate these variables at the back testing stage by studying historical charts to
see what they have in common. For example, the setup may have a higher probability of success if
it appears just above a round number (for a long position) than it does if it appears just beneath
it. Try to keep it simple. Do not get bogged down in the details of the trade (i.e. entry trigger, stop
loss placement and exit strategy etc.) when defining and then testing the setup.
Eventually, if the definition of the setup is precise enough and the testing of it is rigorous enough,
it should be possible to assess the number of profitable trades relative to the number of
unprofitable ones. This is often referred to as the ‘Success’ ratio and can be expressed as a
percentage by dividing the total number of profitable trades by the total number of trades made
(winners and losers) and multiplying by 100.
TW: My setup(s) is . . . (clearly defined in section 12.3 of my plan and I am so familiar with it that
I can spot it in real time instantly. Extensive back testing and forward testing by paper trading
provides consistent data that indicates the setup has a probability (i.e. Success ratio) of X%).
JB: My setup targets stocks/shares in a rising trend on a weekly chart. I then look for RSI
oversold conditions in a rising market. I use my volatility entry advisor to signal the entry level
(refer Question 12).
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
51
Extensive back testing and forward testing by paper trading provides consistent data that indicates
the setup has a probability (i.e. Success ratio) of around 65%. However, we must stress here that
historical results are no guarantee of future returns. Please refer to the disclaimers in this ebook
and the Terms of Use at www.sharetradingeducation.com.
10.8 What is the Risk-Reward Ratio?
To determine the risk-reward ratio, we need to know the ‘Success’ ratio or probability ratio
described in 10.7, above and the ‘Sharpe’ ratio. The latter is the average number of £££'s made
on profitable trades, relative to the average number of £££'s lost on unprofitable trades. To
express this as a percentage, divide the average £££'s gained on profitable trades by the
combined figure of the average number of £££'s gained and lost and then multiply by 100.
For the sake of argument, let us suppose that we have a Success ratio of 2:1 - i.e. a probability of
success of 66%. Additionally, we also have a Sharpe ratio of say, 1.5:1 - so that if we risk £40.00
we stand to make £60.00 on the winning trades.
The Success ratio tells us that we win 2 out of every 3 trades and the Sharpe ratio tells us that, of
the 2 winners, we make 2 x +£60.00 = +£120.00.
Our one losing trade of the three costs us -£40.00. On all three trades we risked £40.00 and
ended up with a net gain of +£80.00. Therefore, if we divide the net gain by the amount we
risked, we arrive at a risk-reward ratio of 2:1.
However, a word of caution: all of this assumes that we only trade the setups defined in our plan
and that they have been thoroughly back and forward tested to determine their probability of
success.
TW: I have forward tested my strategy initially by paper trading it and subsequently by using very
small sums of money in live trading. The results enable me to determine . . . (a ‘Success’ ratio of
2:1 or better and a ‘Sharpe’ ratio of 1.5:1 or better. Therefore, I have calculated my risk-reward
ratio to be in the order of 2:1 or better).
JB: Another viewpoint of risk-reward is discussed by Daryl Guppy in his books. He and some other
traders employ a rule that before entering a trade they will compare the minimum amount of profit
they are targeting vs the amount of risk they are prepared to be exposed to.
Then they will not enter a trade if the risk reward ratio is less than about 3 times.
For trending ‘blue sky’ stocks this will not apply but we are mindful of the following, particularly
when we have a list of potential trades. Comparisons like this help to optimize which trades to
select.
For example, suppose we had the following 3 alternative potential trades:
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
52
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
Table 4.1 Risk-Reward Ratio
Potential Trade No
1
2
3
Target Minimum trade profit
10%
30%
30%
Planned Trade Risk#
15%
20%
10%
Risk - Reward
0.7
1.5
3.0
#The Trade Risk is calculated as the difference between the planned entry price and the Initial
Stop Loss Price divided by the entry price e.g.
For an entry price of $3.00, Initial Stop Loss of $2.70:
then Trade Risk = $3.00 -$2.70 x 100 = $0.30 x 100 = 10%
$3.00
$3.00
In the above Table 4.1, again please note that we are discussing the % of the trade, not the %
risk of the total portfolio.
Regardless of how many stocks we were looking at, potential trade numbers 1 and 2 would be
excluded immediately by this rule as the risk-reward factor is less than 3. In fact Trade 1 is
actually showing a risk greater than the potential profit – a sure-fired recipe for potential disaster.
Potential trade no 3 is the only one of the three shown above which would qualify as far as riskreward is concerned, if we were looking to select a stock as our next ‘investment’ using this rule.
Figure 4.1 Atkinson Trade Optimizer
From the user’s chosen criteria, the Atkinson Trade Optimizer (Figure 4.1) is a handy tool to
compare and optimize the following outcomes for a list of potential trades:
1.
Risk-reward ratios
2.
Maximum position size
3.
User’s elected position sizes and
4.
Corresponding projected total portfolio growth for these position sizes.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
53
Risk-reward is a factor not usually examined under my approach but is shown here for those who
choose to use it. Rather, my over-riding rule is such that the maximum planned risk shall be
not greater than 10% of the position size.
This is so that if the trade is sold at a 10% loss, it will only need an 11% recovery on the next
trade to make up the loss.
Compare this with the psychological and technical challenge of a 50% trade loss which would need
a 100% profit on the next trade(s) to recover capital – see 10.9 below.
In the examples above, potential trade numbers 1 and 2 with planned trade risks of 15% and 20%
would therefore have been excluded using this rule too as they are both greater than the 10% JB
Trade Risk limit.
10.9 What is Your Risk Per Trade?
Fact: being able to predict market direction 99% of the time is useless if you risk 100% of your
equity on every trade. You could make a fortune but, eventually, you WILL lose everything! Many
traders will not risk more than 1% of their total equity on any one trade, unless their account size
is very small - then this figure may rise to around 3%.
TW: For every trade I enter, I will not risk more than 2% of my total equity or commit more than
10% of equity. For each trade I will identify the ideal stop loss point and vary the number of
contracts/shares to ensure that I do not risk more than 2%.
JB: As discussed in 10.3 above, for our notional portfolios, each with a starting value of $100,000,
we have elected to reduce the risk on any one trade to 1% of portfolio value.
We will set the initial and trailing stop losses using my ‘JB Premium Charts’ which includes my
volatility based indicators.
The cruelty of the market is such that mathematically, if a stock falls 20%, it needs to climb back
25% just to break even. A fall of 50% would need to make a 100% just to regain its original price
e.g. $10 to $5 is half price, requiring another $5 or 100% to get back to $10.
For this reason, I aim to keep my losses small - not only in terms of the total portfolio risk - but
also the individual trade loss.
I will therefore only enter a trade if the potential fall between my proposed entry price and the
initial stop loss price is less than 10% (refer 10.8).
If the price difference is greater than 10%, then I either:
¾
Wait for a retracement to buy closer to the initial stop loss or
¾
Dismiss the stock and look for another opportunity.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
54
As a third limit, the maximum we will place in any individual trade is 15% of the total portfolio
value at any given time.
All 3 of these rules are summarized in Question 10.13.
10.10 Where Will You Place Your Stop Loss Orders?
Every trade you make MUST have a stop loss. Unless you are a seasoned professional trader,
make sure it is an actual pending stop order in the market, NOT a mental stop! This will ensure
that all losses are cut short.
Also, if at all possible, make it market controlled and not a fixed percentage (i.e. 2%) of your
equity. E.g., if you trade pullbacks, and your strategy dictates that you place your stop loss just
below the low of the pullback, then that is where it should go. Vary the number of contracts /
shares to ensure that you remain within the risk per trade parameters defined in 10.9, above.
Admittedly, this can be tricky to achieve on small accounts.
TW: For every trade I enter, I will decide in advance where to place my stop loss in the event that
the trade goes against me. I trade retracements in a rising market and place my stop under the
recent low of the pullback.
JB: Our strategy for each notional trade selected for our notional portfolios is:
1.
To set an Initial Stop set under the most recent low. This will be determined prior to entry
and used to calculate our position size so that we do not place more then 1% of our capital at risk
(refer 10.3)
2.
Once the stock moves in our direction we will ratchet up the stop loss, using the JB Trailing
Stop Loss. We trail the stop loss below the price action so that if prices retrace we will close out at
a profit. The details on how and when this is done are explained further in Questions 11.7 to
11.10.
10.11 When Will You Stop Trading?
Knowing when to stop trading is both good discipline and good risk management. Additionally, it
helps to prevent chasing losses on losing days and helps to prevent greed from rearing its ugly
head on winning days. Every single trading day should end in one of three ways, namely:
1. On a winning day, you have a very simple rule for stopping trading once you have reached your
target.
2. On a losing day, you have a daily stop and cease trading as soon as it is hit.
3. Some days there are not any trading opportunities to be had, so you do not trade at all.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
55
TW: 1. Upon reaching my daily target I will stop trading . . . (after the first losing trade). 2. Before
reaching my daily target I will stop trading . . . (after two losing trades). To ensure further that my
losses are kept to a minimum, I will . . . (have a maximum daily stop of 3% of my equity). 3. I will
not trade at all on days where . . . (I do not see the setups and entry triggers, exactly as specified
in my plan).
JB:
1 For our notional short term trading portfolio, when certain conditions are met and the closing
price is above the JB Profit Taker, I will place an order to exit the position on the following day
(refer Questions 11.11 and 12)
2. I enter the market after a correction. Retracements in a rising market usually have a reduction
in volatility. After my entry, a rise in volatility often thrusts prices sharply higher. The initial stop is
used because a subsequent correction is also often volatile and could thrust below a trailing stop.
The trailing stop takes over from the initial stop once prices rise above the initial thrust that
occurred after entry (refer 11.11)
3. When prices close for just one period below the initial stop (i.e. 1 week for long term investing
and 1 day for short term trading), I will place an order to exit the position on the following day
(refer 11.8)
4. When prices close two consecutive periods (as defined above) below the JB Trailing Stop I will
place an order to exit the position on the following day (refer 11.9)
5. I remain disciplined at all times. I will not place any orders when my indicators do not generate
entry or exit signals.
GENERAL MONEY MANAGEMENT
10.12 Large Drawdowns and Profits – What Will You do?
Your trading capital must be money that you can afford to lose and be set aside from everyday
expenses. If you lost the lot, it should make no difference to your standard of living.
Clearly define in your plan the extent to which you will credit additional funds to your account in
the event of large draw downs and debit the account when it starts to burst at the seams with
huge profits!
TW: In the event of a large drawdown, I will . . . (only credit additional funds to my account with
‘spare’ money that I can afford to lose. I will not commence trading again until I have identified
the cause of the drawdown and have re-tested the strategy to ensure that it meets my profit
objectives).
When my trading equity exceeds the amount I need to trade my strategies, I will . . . (withdraw
the surplus and give it all to that great bloke from T2W called ‘timsk’ who started that thread . . !)
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
56
JB: In direct contrast to TW’s viewpoint, we do not share the view that you should trade or invest
money you ‘can afford to lose’. We tend to move towards our most dominant thought.
Psychologically, we are at risk of doing exactly that i.e. losing most or all of our funds if we
programme ourselves with this belief.
Rather, we acknowledge that investing or trading is a psychological activity, supported by strong
money and risk management.
Many readers look to our newsletter for education to learn and then adapt and develop their own
strategies for investing their funds to suit their personality and profile. The aim is that they will
learn sufficient to survive initially, then to grow their portfolios with sound risk management in
place.
Again we must stress that we do not give advice or recommendations. We also point our readers
to the disclaimers posted in this ebook and our newsletter. The ultimate decisions are left with the
reader.
For most of our readers, we assume that their funds, like ours, are not those that they are
‘prepared to lose. However we acknowledge that not all trades will be profitable. In fact, as
stated in 10.7, with a success rate of 65% that means by definition we know before we even start
the notional portfolios that approximately 35% of trades overall will be unprofitable.
However, experienced investors and traders understand that two of the main keys to long term
survival and profitability in the market are controlling losses, while maximizing profits.
This may be achieved by either “letting profits run” - usually through holding long term in strong
uptrends- or by successfully completing a high percentage of quick and profitable trades in the
short term (refer Question 12).
In his ebook ‘The Atkinson-Guppy Articles’ John Atkinson provides details on the importance of
analyzing completed trades in terms of ‘Expectancy’ as first described in Dr Van Tharp’s book
‘Trade Your Way to Financial Freedom’. This is a factor which examines the % of winning trades vs
losing trades and the amount of the average gain of winning trades compared with the average
loss per losing trade.
Many traders and investors take their profits, particularly when substantial, and move them to the
relative safety of the bank. Others choose to compound their profits, in the hope of reflecting the
compound interest graphs often shown in brokers’ literature.
The former offers more security and safety in the market and may be likened to a small animal
scurrying out from its burrow for food, then racing back down its hole - away from the risk of
attack from birds, reptiles and other animals.
In contrast, at first thought, compounding has the potential to accelerate returns. However by
having all funds exposed at any time, it is a two edged sword - as it also has the potential to
accelerate losses.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
57
This can occur if there is an overall market drop and the investor does not have stop losses in
place – or does not action these stops with discipline when they are triggered.
A 10 or 15% sudden correction across the market, if applied across a portfolio, would result in a
corresponding or sometimes greater fall in total open portfolio value - as some individual stocks
may fall by more than the index benchmark.
We believe compounding should only be employed by investors who are well disciplined and have
a structured Trading Plan in place, including the use of sound money and risk management
procedures.
For simplicity of reporting, we initially ignored any growth in the notional portfolio value and did
not include any compounding effects. Since then, from time to time we have given examples of
the power of compounding
As discussed in 10.3 and 10.6, in the event of a large drawdown of 6% of value in portfolio values
within a month, we will close them out and sit to the sidelines.
10.13 Which Money Management Approaches Will You Utilise?
If you are starting with a small account, say £5,000 or less – what are your objectives? If, for
example, you want to be a ‘pattern day trader’ (P.D.T.), your account will need to grow by at least
350% in order to achieve the $25,000 minimum necessary to open a P.D.T. account. As the
profits come in, will you risk more per trade, diversify into other trading strategies or adopt a
completely different approach?
TW: As my trading account grows, I will . . . (increase my position size to a maximum of X
contracts / shares whilst remaining within the parameters of my risk management strategy).
JB: My style tends to be conservative and with a longer term focus.
As posted at the new ‘Ask Jim Berg page’ at www.sharescene.com, I favour two main
trading/investing strategies:
1) Long term conservative investing, combining technical and fundamental analysis. Common
sense approach, using weekly charts to target rising sectors and healthy, low risk companies, as
demonstrated in our newsletter long term portfolio.
2) Shorter term trading, targeting temporarily oversold conditions in rising markets for which I use
volatility indicators for entry, trailing stop and profit taking with the intention of staying with a
trade for a few days to a few weeks.
For money management approaches we refer to our co-authored ebook ‘ 10 Secrets to Profitable
Online Stock & Share Trading’ in which John Atkinson wrote:
“Many investors and traders spend less time planning the risk of individual trades and their overall
portfolio for their wealth creation than they do planning their grocery shopping. Many do not plan,
accurately track or review their progress at all.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
58
Some think that spreading or ‘diversifying’ their portfolio into several large positions in 'safe' blue
chips is their way to address money & risk management. They do not realize that overloading in
too many positions or too large a position can put their portfolio seriously at risk.
Without proper planning one may end up with a portfolio that is a disaster waiting to happen. We
know. We've been there & we wouldn't want you to go through the sleepless nights and gut
wrenching fear, financial and emotional loss that we and a few traders we know have experienced
as a result
A major reason why we lost our Sydney waterfront home in 2000 and more since was not
developing or adhering to correct risk & money management rules - so our series of three portfolio
tools has been created from our own personal very hard knock experience at a very real financial
cost of literally hundreds of thousands of dollars and at a huge emotional cost………….
…………..Putting all or most of your available funds into one stock or sector; placing at risk a large
% of one’s portfolio in any one position or having too many open positions with an unacceptable
total % of portfolio at risk are recipes for potential disaster.
Experience of other traders shows that it is also wise to diversify their capital in a chosen
proportion between a range of high, medium and low volatility stocks to maximise annual growth
of their portfolio.
Experienced traders and investors have varying rules for money and risk management.
The following are some typical examples from the literature:
1.
In his books ‘Share Trading’ and ‘Better Trading’ and his newsletter Daryl Guppy chooses
1/7 (14.3%) in high volatility (e.g. ‘speculatives’); 2/7 (28.6%) in medium volatility (e.g. ‘mid
caps’) and 4/7 (57.1%) in low volatility (e.g. ‘blue chips’). Others may choose a maximum of 10%
in high volatility. The final choice is the user’s responsibility
2.
For small portfolios, in his book Share Trading, Daryl Guppy also provides an example of
building from $6k to $21k, by starting with $2k (i.e. 1/3rd) in high volatility and $4k (i.e. 2/3rd) in
low volatility stocks; then splitting this back to 1/7; 2/7 and 4/7 when the portfolio has grown to
$14k.
3.
Maximum position size as a % of total portfolio: commonly 20-25% absolute max; some
reduce to 15% or less for large portfolios or speculative stocks.
4.
Maximum Equity Risk: No more than 2% of portfolio to be placed at risk in any one trade –
some choose to reduce this to 1 % or 0.5% for larger portfolios or for more highly volatile
positions………………………”
Some traders split their portfolio allocation using total market capitalization of the companies as
their delineating criterion, as per the following definitions:
¾
Large Caps – the S&P/ASX 50 Index (ASX code: XFL)
The S&P/ASX 50 index comprises the 50 largest stocks by market capitalization in Australia.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
59
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
The constituent companies represent the biggest national and multi-national publicly listed
companies in the Australian equity market. The S&P/ASX 50 index places an emphasis on liquidity
and investability. The constituents of the index are reviewed quarterly using the previous six
months data. The index forms the basis for the streetTRACKS S&P/ASX 50 exchange-traded fund,
and the ASX mini50 futures contract. At June 30, 2002, the S&P/ASX 50 represented 75% of the
market capitalization of domestic equities listed on the ASX.
¾
S&P/ASX MidCap 50 Index (ASX code: XMD)
The S&P/ASX MidCap 50 index is comprised of companies within the S&P/ASX 100, but not those
included in the S&P/ASX 50. The index provides a benchmark for large active managers where the
emphasis is on having a portfolio with sufficient liquidity. The index represented approximately
10% of the total market capitalization of the Australian market at June 30 2002.
c) S&P/ASX Small Ordinaries Index (ASX code: XSO)
The S&P/ASX Small Ordinaries index is comprised of companies included in the S&P/ASX 300
index, but not in the S&P/ASX 100 index. This index provides a benchmark for small-cap
investments. The index represented approximately 6% of the total market capitalization of the
Australian market June 30 2002.
Other traders may decide to trade only the shares which are in the ASX20, ASX100, ASX200 or
ASX300
Some shares may fit our definitions as a ‘large cap’ but may be excessively volatile in relation to
my rules. Such shares, e.g. Newscorp would not be considered as a Low Volatility ‘blue chip.’
To move past this challenge, we turn to Aspect Huntley, a well respected Agency which provides a
ranking analysis for their newsletter subscribers on Companies listed on the ASX.
The results are also tabulated on the Etrade site for the use of their clients and may be looked up
under ‘Quotes and Research’ then click on ‘Profile’
At the time of writing this ebook, Aspect risk rankings could
www.ninemsn.com.au:
1. Money
2. Shares & Funds
3. Find Shares
4. Search window – Aspect Ranks for all Companies
5. Search
also
be
found
at
The following Table 4.1 shows the relative rankings assigned by Aspect Huntley for value, growth,
income and risk.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
60
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
Table 4.1 Aspect Huntley Key Measures
Key Measures Details
Description
1
2
3
4
5
Value, Growth, Income
Highest
Above
Average
Average
Below
Average
Lowest
Risk
Lowest
Below
Average
Average
Above
Average
Highest
In particular, Aspect Financial explain on the Etrade Australia site that their “….Risk Ranking
incorporates measures to assess both market risk and total risk. Market risk is determined by a
company’s beta, which measures the volatility of a stock relative to the total market. Total risk is
measured by the standard deviation of a company’s monthly share returns.
Financial risk, which measures a company’s ability to meet its financial obligations, such as debt, is
measured by a number of different ratios which are industry-specific. These are not explicitly
contained in their overall risk rank. Share price volatility, however, is generally a good proxy of
financial risk as the two are closely linked. In other words, companies with high debt to equity
ratios relative to their industry peers will generally have more volatile earnings and stock prices.
The rankings for each category are based on the position of each stock relative to all other stocks
covered by Aspect. The rankings are recalculated every night based on the latest share prices,
company financials and other data they receive. The distribution for all rankings is based on the
following percentages:
Rank
1 = best 10%
2 = next 20%
3 = middle 40%
4 = next 20%
5 = bottom 10%”
From February 2006, for our long term investing portfolio, which we feature from time to time, we
introduced the following rules (which were subsequently updated after July 2006, as detailed in
Question 12.11):
¾
Use Jim Berg’s fundamental criteria as the first major filter
¾
For simplicity we tended towards allocating the distribution of large, medium and small caps
as above.
¾
Then combine this with Aspect Financial Risk Assessments to only choose Companies with a
Risk Ranking of 1 to 3 i.e. to ensure we do not include companies with above average Risk
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
61
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
¾
Then ensure they pass Jim Berg’s technical analysis criteria so that we trade with “weightof-evidence”
i.e.
the
Company
meets
a
number
of
fundamental
and
technical criteria before inclusion in the portfolio.
For our notional long term investing portfolio we originally elected to use the following money and
risk management profile:
1.
Volatility grouping (max):
i. Small caps/high volatility:
ii. Medium volatility ‘midcaps’:
iii. Low volatility ‘blue chips’:
12%
28%
60%
100%
The above percentages are the maximum when fully invested. For much of the time we will have
‘cash’ available awaiting opportunities or when sitting to the sidelines during market downturns.
The reason for this allocation apportionment was to place the majority of our notional ‘funds’ into
the ‘elephants’ of the market. Then, to apportion the remainder between some other
fundamentally sound companies with smaller capitalizations which may also help accelerate
portfolio growth
While retaining this allocation distribution in concept, from February 2006 we also placed, as an
over-riding criterion, that every share chosen for our Long Term Investing portfolio must have an
Aspect Risk Ranking of 1, 2 or a 3.
For simplicity, as Etrade shows at a glance for each Company, the Aspect Rankings and the
participation within the ASX20, 50, 100, 200 and 300, we also adopted the following
apportionment definitions from February 2006 onwards, as shown in Table 4.2:
Table 4.2 Long Term Investing Portfolio Allocation
‘Large caps’
‘Midcaps’:
‘Small caps’
Index
Participation
ASX50
ASX midcap 50
Rest of market
Aspect Risk
ranking
1, 2 or 3
1, 2 or 3
1, 2 or 3
Apportionment
60%
28%
12%
For instance, the following Table 4.3 shows a selection of some of the stocks we have included
within our notional portfolio at various times.
This table shows, for each stock, the Risk Ranking and the participation within the respective
Indices.
(Note these are shown for educational purposes only, are deliberately not necessarily current and
are definitely not ‘buy’ recommendations)
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
62
How to Write Your Own Stock & Futures Trading Plan
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Table 4.3 Risk Rankings & Index Participation
Ticker
Code
ORI
BLD
CML
ASX
WOW
ALN
ARQ
Risk
Ranking
3
3
1
2
1
1
3
ASX20
2.2%
3.8%
-
ENE
3
-
Index participation
ASX50
ASX100
ASX200
0.9%
0.8%
0.7%
0.7%
0.6%
0.6%
1.6%
1.4%
1.3%
0.4%
0.4%
2.8%
2.4%
2.3%
0.3%
0.3%
0.04%
-
-
0.05%
Grouping
ASX300
0.7%
0.5%
1.3%
0.4%
2.2%
0.3%
0.04%
0.05%
Large cap
Large cap
Large cap
Large cap
Large cap
Large cap
Medium
cap
Medium
cap
Small Cap
Small Cap
LSG
2
0.02%
CAB
2
0.04%
2.
Maximum Position Size:
The maximum we will place in any individual trade is 15% of the total portfolio value at any given
time
3.
Maximum Sector Risk:
The maximum we will place in combined trades in any one sector is 30% of the total portfolio
value at any given time
4.
Maximum Equity Risk:
No more than 1% of total portfolio value to be placed at risk in any one trade
5.
Maximum Equity Risk:
No more than 6% of total portfolio value to be placed at risk in all combined trades.
Figure 4.2 Atkinson Portfolio Planner
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
63
The above screenshot (Figure 4.2) is an extract from one of our newsletter portfolios. It shows a
worked example of these various factors being applied to a group of notional trades, using the
Atkinson Portfolio Planner©. These are not buy or sell recommendations.
In particular, it shows that at that time we had:
¾
Two notional trades in the Materials Sector, totaling $25.4k i.e. approaching our 30%
sector limit : and 2 trades in the Retailing sector totaling 21.9%
¾
No speculative shares
¾
$15k of our $28k allocation in mid caps.
¾
Had filled up our $60k allocation for ‘blue chips
¾
Two trades ORI & LSG at the maximum but not exceeding our 15% of portfolio limit
¾
No ‘open’ trades had a risk exposure greater than 1%
¾
The total portfolio risk of all open notional trades was 4.8% i.e. approaching our 6%
‘piranha attack’ limit
In Chapter 3 we also mentioned that from time to time that we will trade Share Purchase Plans, as
detailed in John Atkinson’s ‘The Atkinson-Guppy Articles’
As these are short term trades only, lasting a few weeks maximum at a time, we will look to have
some notional Share Purchase Plan trades from time to time in our Short Term Trading Portfolio
For these, we may trade ‘positions’ of up to $5,500 maximum for each of these Share Purchase
Plans, paid as two ‘installments’, with a view to ‘selling’ them as soon as the main allocation of
shares from the second ‘installment’ are received. This will generally be within about a month of
initial ‘purchase’.
We will identify possible candidates for Share Purchase Plans (SPP) from our broker’s email alerts
from time to time and will only consider Share Purchase Plans:

Of greater than 50c
We may ‘buy’ the initial entitlement position if the share is in early recovery mode
from a downtrend. However, we will only go on to later commit the larger installment
if the share qualifies as being in an uptrend - as defined by Jim Berg’s Technical
Analysis methods in his Home Study Courses ‘

With an open profit at the time of purchase of the second ‘installment’ of at least:
o
10% for shares over $3;
o
15% for shares over $1 and less than $3
o
25% for shares over 50c and less than $1
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
64
To ensure that we can easily ‘exit’ the SPP when allocated, we will also only select
Share Purchase Plans for the notional Short Term Trading Portfolio which have an
average daily volume over the past 30 days of at least $165,000 per day i.e. 30 x the
value of the maximum SPP ‘purchase’ for this portfolio.
Similarly, for other notional trades in both our notional portfolios, we will only
select shares with average daily volumes over the past five days of at least ten times
the notional position size.
SPECIFIC MONEY MANAGEMENT
10.14 How Will You Lock In Profits?
Using a trailing stop to lock in profits once the trade is on the right side of break-even has two
clear advantages:
1.
2.
At worst, you may end up with a scratch trade – but no losses.
At best, it allows profits to run which enables you to take a sizeable chunk out of
the expected move.
TW: I will utilise a trailing stop which I will position . . . (x points below the lower high in an
uptrend or y points above a higher low in a downtrend).
JB: For our short term trading notional portfolio I use DAILY charts and our Short term strategy
using the Berg Profit Taker and JB Volatility Trailing Stop. These are calculated at the end of each
trading day (refer Question 12.6)
For my long term portfolio, I update each of the notional trades on WEEKLY charts to show the
position of the trailing stop loss as at the close of business on Friday.
For the benefit of shorter term traders, for these stocks/shares we also provide extra education by
separately showing:
¾
Daily charts and
¾
Short term trading strategies, as described in Question 12.8 and 12.9
¾
Profit taking and stop loss exit strategies, using the Berg Profit Taker and
JB Volatility Trailing Stop.
It is not my intention to take profits using the Profit Taker for my longer term portfolio, as I prefer
to use a trailing stop loss sufficiently below current price action to allow me to ride the trend for as
long as possible.
I acknowledge that this results in a delayed exit at the completion of the trend, compared with
shorter term exit signals. The trade-off is designed to result in significantly reduced stress, ‘screen
watching’ and hence trading activity meanwhile.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
65
10.15 How Will You Determine Your Position Size?
The size of your position should never exceed the parameters specified in your risk management
rules. That said, there are still many options available. Some strategies might have a high
probability of success (e.g. trend continuation strategies) enabling you to adopt a more aggressive
position size at entry.
Other strategies might have a lower probability of success (e.g. reversal strategies) and your risk
management criterion dictates a more conservative position size at entry.
However, once the trade and the new trend are established, it may be advantageous to add to the
position at specific continuation signals. Potentially, this allows for a large position size to
accumulate, whilst all the time maintaining a very low exposure to risk.
TW: I am a scalper so this approach does not apply to me! I am a swing trader and I will build
my position by . . . (adding x contracts / No. of shares at the next ABC continuation pattern. After
that I will add . . . )
JB: In our newsletter our notional short term trading portfolio is based on a standardized position
size – see Question 12.7, based on a maximum loss of 1% of portfolio per trade.
For the notional long term investing portfolio we use the Atkinson Trade Optimizer© to calculate
the position size of notional trades so that if the trade triggers the pre-determined stop loss level,
then no more than 1% of total portfolio value will be at risk, after allowing for brokerage. (refer
10.3 above).
Figure 4.3 Position Size Optimization
The Atkinson Optimizer (Figure 4.3) calculates the maximum number of stocks based on some of
the main nominated portfolio risk parameters nominated in this Chapter.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
66
A separate sheet also allows the user to reduce the position size to match the user’s other
requirements.This screenshot is a condensed extract from part of the Optimizer, without
considering profit targets - as we do not consider these (and correspondingly Risk-Reward Ratios)
for trending shares (see 10.8 above).
The Optimizer shows that the initial calculations based on risking our maximum allocation of 1% of
portfolio would have allowed us to ‘buy’ 1723 stocks for a total of $29.3k.However this would have
exceeded another of our requirements, being that the most we will allocate to any one stock is
15% of our portfolio.
The Optimizer has checked, found this challenge and notified us with the yellow and red warning
that the position size is governed by the % of total portfolio rule.Accordingly, the Optimizer has
then automatically reduced our notional position size to 879 shares - at a total cost of $15k
including brokerage.
This notional position size places a total of $569 of the notional Long term Investing portfolio at
risk (including buy and sell brokerage) if prices drop from our entry point of $16.98 to our stop
loss of $16.47. This equates to 0.6% of our notional capital at risk.
The Atkinson Trade Optimizer confirms that the adjusted risk is now 0.6% i.e. this is within our
allowable portfolio parameters for not exceeding our 1% risk rule - while also being within our
maximum 15% of our total portfolio in any one stock i.e. $15k for a $100k portfolio.
______________________________________________________________________________
For more details on Money & Risk Management, refer to John Atkinson’s Home Study Course
module on Money and Risk Management which is based on and includes Daryl Guppy’s ‘Share
Trading’ & ‘Better Trading’ books and John Atkinson’s own Portfolio Management Tools at www
.sharetradingeducation.com.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
67
CHAPTER 5
EXITS
By Tim Wilcox & Jim Berg
• Exit Strategies
• Stop Loss Exits
• The Berg Profit Taker
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
CHAPTER 5.
68
EXITS
We deliberately discuss Exit Strategies in this chapter before we look at Entry Triggers. Why? Most
inexperienced traders spend the majority of their time looking at the next trade to buy. They
incorrectly assume that having put the effort into this research and then having entered the
market, they can relax knowing their decision will be ‘right’. This type of thinking leads to a false
bias.
In contrast, experienced traders concentrate more on when they will exit:
o
Before they enter: They decide on an Initial Stop Loss – where they will exit if the
trade goes against them
o
At breakeven: The Stop Loss is raised after prices move in their direction, so that an
exit at this level will recover trade capital
o
At a profit: When their Trailing Stop Loss is triggered or their profit target met
11. Exit Strategy
11.1 Exit strategies are harder to get right than entry strategies. Unfortunately, they are much
more important because, self evidently, they control the profit and loss. If you trade more than
one strategy, you will need to answer these questions for each strategy employed as the signals
that determine your exits may vary.
Arguably, for discretionary traders, the best exit strategy is one that is dynamic and market
controlled, as opposed to a rigid mechanical strategy imposed upon each trade, regardless of
market conditions.
The difference between the two can best be explained with an example. Suppose you have a
mechanical strategy that is based upon a 3:1 risk reward ratio. So, if you risk £30.00, you will exit
as soon as the trade shows a profit of £90.00 or a loss of -£30.00, whichever gets hit first. Very
simple.
If you have a Success ratio of 26% or more, then in time, you will make money. Not a lot, but
some. Chances are that a good percentage of the losing trades will show some gains before
moving against you and triggering your stop. Additionally, a handful of the winning trades will go
on to achieve much larger gains than the £90.00 you took when you closed the trade using the
mechanical exit.
A dynamic, market controlled exit enables you to take some money off the table offered by the
eventual losers and let the big winners run to realize a greater proportion of the increased gains
on offer. These additional profits could transform an overall trading strategy from one that barely
breaks even into one that is very profitable indeed.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
69
11.2 Losing trades - Will You Exit Before Your Stop is Hit?
Some strategies always exit the trade at the point that the stop loss is triggered and not before.
The advantage of this approach is that it allows you some extra ‘wiggle’ room, which may result in
a profitable trade.
Conversely, the downside is that your losing trades are always at the maximum allowed by your
strategy and, in the event of a bad fill, may even exceed the maximum.
TW: If the trade goes against me, my exit strategy permits me to . . . (close the trade early if the
conditions in 11.3 below are met).
JB: If the trade goes against me, I only exit when the stop is hit.
11.3 Losing trades – Which Signals Will See You Exit Early?
If you opt to close the trade before your stop loss order is filled, what are the precise signals that
will trigger your exit?
TW: If the trade goes against me, I will exit before the stop loss order is filled . . . (if the price
does not move X points in my favor by the close of the next price bar following entry).
JB: If the trade goes against me, I will never exit before the stop loss order is filled.
11.4 Winning Trades – Which Signals Will See You Exit Completely?
There will be times when it is advisable to get out – and fast! Be prepared for those occasions and
know in advance what signals to watch out for.
TW: I will close my whole position immediately . . . (upon the price crossing the XYZ moving
average).
JB: (Refer Questions 11.7 to 11.11 for more details) I will close my position:
A) Short-term Stock Trading (daily chart) – only on:
Initial Stop (exit after one day’s close below) - to protect capital or
Trailing Stop (exit after two days consecutive closes below - to lock in profits or
Berg Profit Taker conditions being met – to grab ‘spike’ profits when prices
become overheated
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
70
B) Long-term Stock Investing (weekly chart) – only on:
Initial Stop or
Trailing Stop i.e. The use of the Berg Profit Taker does not apply.
Note that:
1.
For short term trading, my Initial Stop exit is after one day’s close below. My
Trailing Stop exit is after two days of consecutive closes below. In contrast,
2.
For long term investing, my Initial Stop exit is after one weekly close below. My
Trailing Stop exit is after two weekly consecutive closes below.
11.5 Winning Trades – Which Signals Will See You Close Half?
A popular approach is to close half your position at the first target or at the first sign of weakness
and let the other half run.
TW: I will close half my position . . . (upon a X% increase/decrease in volume compared with the
previous price bar).
JB: I never close half my position.
11.6 Winning Trades – Which Signals Will See You Close the Remainder?
Even if your exit strategies thus far are well planned and executed, the success of your entire
strategy could still hinge on how you exit the second half of a profitable trade.
TW: I will close out the second half of my position . . . (at the very end of the day, based on my
research which indicates that on trending days, my instruments close within X% of the high of the
day (H.O.D.)).
JB: I never close half my position.
11.7 More on Jim Berg’s Exit Rules
So far under this Question 11 we have discussed Exit Strategies in answer to the questions raised
in Tim Wilcox’ original Trading Plan Template.
Before we move on to Entry triggers, we recap and show in detail the exit strategies developed for
the Trading Plan for our notional newsletter stock portfolios. These are based on Jim Berg’s Home
Study Courses ‘Trading Strategies with JB Premium Charts’ (part of his JB Combo package) - or for
Metastock users, his ‘Trading Strategies with Metastock’ .
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
71
We expand on the ideas presented to date and illustrate them with charts. We all learn from
repetition and for many of us, if we see something presented a second time (or more), our
understanding increases.
So we now feature a total of his two main types of stock entry & exit strategies to choose from,
each with their own set of rules and explained further as follows:
Short term - for grabbing short term profits as soon as they occur
Long –Term - for longer term ‘buy and hold’ investors
All three approaches are primarily strategies applied to trend trades and they share the same
entry conditions – oversold conditions in a rising market. The main differences in approach are:
The time frame as to how long we hold the stocks
Use of weekly charts for Long term Investing vs daily charts for Short term Trading
Using the Berg Profit Taker for Short Term Trading
Management of how stop losses are applied.
A second long term investing strategy employed by Jim Berg is entering after a downtrend has
been completed and a new uptrend has been confirmed. Details for this are featured in Jim’s
‘Stock Trading Handbook - Fundamental and Technical Analysis Combined.
Shorter term trading approaches have tighter stops, in case prices retrace, whereas the longer
term has a wider stop i.e. it is further below the price action - to give the stock more room to
oscillate in the longer term.
The short term approaches also use the Berg Profit Taker to take profits if prices break up and
close above this volatility indicator that Jim has designed.
It works on the assumption that if prices extend above their usual range, then they are often likely
to retrace - like being pulled back by an elastic band. This allows short term traders to grab those
profits before prices pull back
The following notes on Exits are based on Jim Berg’s ebook ‘The Stock Trading Handbook –
Fundamental & Technical Analysis Combined’ and are provided as further explanation.
11.8 Jim Berg’s Exits: Initial Stop Loss
How, and when, a trader exits the market is the tool they use to control profits and losses. Having
a strategy for getting out of a losing trade is essential to becoming a successful investor. An
experienced trader wants to lose the least amount of money possible when he or she has a losing
trade.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
72
The first exit established is a stop-loss exit based on a worst case scenario. If an investor buys
stocks in a company and the price falls, there must be a point at which the position is liquidated.
This exit point is determined by simple chart analysis before the stocks are purchased.
There are a number of obvious levels to place a stop-loss exit. Three of the most commonly used
stop-loss exit points shown below are:
o
Below a recent low
o
Below a trend line
o
Below a polarized support / resistance level
The following Initial Stop rules apply for my long term investing and my short term stock trading
strategies.
My preference is to set my Initial Stop below a significant recent low (Chart 5.1) and below
any round numbers which are otherwise likely to attract buying support.
I will not enter the position if there is a potential price fall from entry price to initial stop
loss price of more than 10%.
We call this the Trade Risk. It should not be confused with Portfolio Risk, which is the maximum
% of the portfolio which we are prepared to lose in any trade (Refer Question 10.9). If the stock
trade goes against me, I exit the position after one day’s close below the Initial Stop for short
term stock trading or after one weekly close below for long term investing.
Chart 5.1 Stop Loss Below Recent Low
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
73
11.9 Jim Berg’s Exits: Trailing Stops
The second exit an investor needs to calculate is the Trailing Stop.
Once the market is trading in the desired direction the Initial Stop Loss is no longer needed. Yet no
investor would be pleased to see a profit disappear and result in a loss.
The Trailing Stop is designed to keep the investor in the position while the market is trending and
to protect a significant portion of the profit if the trend is reversed.
Three popular trailing stops are:
¾
Moving Average
¾
Parabolic (SAR)
¾
ATR Volatility
My preference is a Volatility Trailing Stop (see Chart 5.2 on next page).
The timing of when I switch from an Initial Stop to a Trailing Stop is important. There is a danger
of making the switch too early and running the risk of being whipsawed out of the trade
unnecessarily.
I have found that, following a retracement in prices and a reversal from a significant low, my blue
bar entry signal (see Chapter 6) is often generated on low volatility. Subsequently, as prices start
to move back up, the volatility often increases as more buyers worry about missing out and are
prepared to pay higher prices.
However, sometimes a whiplash effect results when prices surge higher, then suddenly retrace
again. To ensure the trade is not closed prematurely by having the stop too close during this time,
I prefer to keep my Initial Stop in place until conditions settle.
Accordingly, my approach is to wait to switch from the Initial Stop and apply the Trailing Stop
after the next higher high. Two examples are shown in Charts 5.3 and 5.4 below.
The Volatility Trailing Stop is based on the Average True Range, as defined in the Introduction as:
Average True Range (ATR) - ATR measures volatility by averaging price ranges over a set time
period while taking into account trading gaps. The True Range indicator is defined as the greatest
of the following for each period:
¾
The distance from today's high to today's low.
¾
The distance from yesterdays close to today's high.
¾
The distance from yesterdays close to today's low.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
74
The Average True Range is the average of the true ranges over the past x periods, where x is
specified by the user.
The Trailing Stop indicator rises and falls with the level of volatility and higher or lower closing
prices.
I never want to lower the Trailing Stop, so I adjust the formula to stay at the highest level reached
for a period of 15 days or weeks, depending on the chart time frame.
Chart 5.2 Volatility Trailing Stop
Once in place, I exit the position after two consecutive closes below the Trailing Stop.
This contrasts with exiting after one close below the Initial Stop (refer 11.8 above).
Summarizing my exit strategies so far, for recording purposes, the final exiting of a notional trade
in our newsletter portfolios will be taken under the following triggers:
¾
¾
For Long term stock investing
o
By ONE weekly close below the INITIAL Stop Loss
o
Or after TWO weekly consecutive closes below the TRAILING Stop
Loss, with an exit taken the following Monday
For Short term stock trading
o
By ONE day’s close below the INITIAL stop loss
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
75
o
Or after TWO days of consecutive closes below the TRAILING stop loss, with an exit
taken the following day
o
Or using the Berg Profit Taker
o
(Refer to Questions 11.11, 11.12 and 12 for more details)
11.10 Jim Berg’s Exits: Switching from Initial to Trailing Stop
In our newsletter we include a section entitled ‘Solving Your Problems’ in which readers are invited
to send in their queries on trading analysis, money and risk management, personal and market
trading psychology. Further to 11.9, the following is an extract from Edition 49 of our newsletter in
June 2006:
Question: Jim, when do you switch from the Initial Stop to the Trailing Stop?
Example 1 - Tap Oil:
JB: The RSI was oversold in April and blue bar volatility entry signal given on April 20th. Enter on
the following day’s open no higher than the high of the signal day ($1.95) and not greater than
10% from initial stop ($1.73). The blue bar volatility entry signal occurs after a correction that is
usually accompanied by low volatility.
Prices often resume the rising trend with an increase in volatility that establishes a short-term high
(A) followed by a retracement (B) that takes prices below the trailing stop. This is normal market
‘noise’ that would signal an exit from the position if the trailing stop was used at this time. So the
initial stop is used until prices establish a clear break of the short-term high (A), which
occurs at (C).
Chart 5.3 Volatility Trailing Stop – Tap Oil
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
76
Example 2- Stock A: RSI oversold in April and blue bar volatility entry signal on April 11th.
Enter on the following day’s open no higher than the high of the signal day ($14.57) and not
greater than 10% from initial stop ($13.97).
The blue bar volatility entry signal occurs after a correction that is usually accompanied by low
volatility.
Prices often resume the rising trend with an increase in volatility that establishes a short-term high
(A) followed by a retracement (B) that takes prices below the trailing stop.
This is normal market ‘noise’ that would signal an exit from the position if the trailing stop was
used at this time.
The initial stop is used until prices establish a clear break of the short-term high (A),
which occurs at (C).
Q: What about the short-term high at $14.90 and retracement to $14.65 that occurred in
April (see arrows)?
JB: Chart 5.4 shows the price rise to $14.90 was gradual with low volatility rather than a thrust
accompanied by extended ranges.
Chart 5.4 Volatility Trailing Stop – Stock A
Stock A
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
77
11.11 Jim Berg’s Exits: Profit Taking
The third exit is optional and is designed to take profits, rather than protecting a profit with a
trailing stop. Taking a profit can be more difficult than taking a loss.
Investors quickly learn the importance of discipline in setting a stop loss but more variables will
need to be considered when taking a profit, such as trailing stops, profit targets and topping
formations. Inexperienced traders, without a clear strategy, will ride a roller coaster of emotions
as they add up unrealized profits and wrestle with the decision to let the profit run or cash in
before a fall in price. Alternating emotions of fear and greed can become constant companions and
further erode the ability to make clear decisions.
There are several strategies the investor can use to decide when to exits and take profits,
including:
¾
Setting Profit targets, e.g.:

Percentage move in stock price or

From pattern projections (e.g. ascending triangles, bullish flags etc.)
¾
At a significant overhead resistance level or top of trading channel
¾
When a short term indicator signals a short term top e.g. Dynamic Momentum
Index (DMI)
¾
Using volatility
Again, my preferred short term profit taking is based on volatility.
The Berg Profit Taker indicator signals when the security has moved too far too fast and has
created a profit taking opportunity. See Chart 5.5 below. The formula combines a moving average
of the highs with ATR (10) volatility.
Under our Short Term Trading Strategy, a clear close above the JB Profit Taker with at least 10%
profit signals the profit taking opportunity. The position is exited on the following day’s opening
price.
Chart 5.5 Berg Profit Taker
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
78
11.11 Jim Berg’s Exits: Using the Berg Profit Taker
As a long term conservative investor, using weekly charts, I had little use for a profit taking
indicator. Short term price moves were just noise. When I added a short term trading strategy I
noticed prices often moved too far too fast and usually retraced the rise just as fast.
The retracement often went through my trailing stop, resulting in a small gain or loss and a lost
opportunity for a profit.
I had to make a decision. Do I use a trailing stop, let the profits run and miss out on some short
term profits? Or take short term profits and miss out on some larger moves? Traders need to
make a choice. It has to be one or the other and the trader must have the discipline to follow the
plan. Trading without a plan means making a decision in the middle of the trade.
Murphy’s Law means prices will continue to rise if you use a profit taking indicator or fall if you
ignore the profit signal and use a trailing stop.
Switching back and forth between two exit strategies becomes a roller coaster of emotions and
indecision with every trade. It is also a difficult decision because traders often follow a shares’
price action after closing out a position. They are looking for confirmation they made the correct
decision.
I have a friend who started trading, without a plan, during the dot com boom. He bought shares in
a company for $.50 and sold several months later at $4.00. The share price continued to climb to
$6.00. Every day he calculated what he would have made if he still owned those shares. He was
unable to trade until the crash brought prices below his exit level.
Every trading strategy will have losses. Positions will be closed and the price will continue to rise.
Positions held will fall in price. It takes discipline to stick to the plan and not punish yourself for
unsuccessful trades. So I decided to take profits, when trading short term, and not punish myself
if the share price continued to rise. I already had a volatility based entry and trailing stop, so
created the JB Profit Taker, a combination of moving average and average true range.
In our newsletter during early 2006 we developed our Short Term Trading Strategy which takes
profits once there is a close above the Berg Profit Taker, with at least 10% profit. This is explained
further in 12.8.
______________________________________________________________________________
The above sections 11.7 to 11.11 contain extracts from Jim Berg’s Investing & Online Trading
newsletter and his ebook ‘The Stock Trading Handbook - Fundamental & Technical Analysis
Combined .
The Berg Profit Taker, JB Trailing Stop and ‘blue bar’ volatility entry trigger are part of JB Premium
Charts package, which in turn, is part of his complete JB Combo.
For Metastock users, they are included within Jim Berg’s Metastock Volatility Charting Template.
This template is available separately or as part of Jim Berg’s Home Study Course ‘Trading
Strategies with Metastock’ at www.ShareTradingEducation.com.
.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
79
CHAPTER 6
TRADE STRATEGIES
By Tim Wilcox, Jim Berg & John Atkinson
• Set Ups
• Entries
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
80
CHAPTER 6. TRADE STRATEGIES – Set Ups and Entries
12. Trade Strategies, Setups & Entries
12.1 Strategies vary according to market conditions, the time of day and the timeframe in which
they are traded. Arguably, virtually all strategies fall into one of three generic groups: breakouts,
retracements and reversals. Within these groups are individual strategies, some of which have
fancy names and are well known. For example, ‘The Sonic Boom Dive’ is a retracement strategy
described by Van K. Tharp in his book, ‘Financial Freedom Through Electronic Day Trading’. The
vast majority, however, remain locked in the minds of the traders who created them and form part
of their ‘edge’.
12.2 Which Strategies Will You Trade?
Many professional traders recommend having at least two different trading strategies, one for a
trending market and one for a non-trending market. Additionally, they would recommend getting
just one strategy up and running – i.e. one that is tested and profitable – before attempting to
introduce another. Keep it simple!
TW: My primary trading strategy is designed for a non-trending market. It is a . . . (retracement
strategy, trading stocks that gap up/down at the open. The premise is that the market tends to
over react to news, be it good or bad, causing the price to become over extended. Subsequently, it
then reverts to a more equitable level and the gap is often filled).
My secondary trading strategy is designed for a trending market. It is a . . . (breakout strategy,
which aims to jump on the bandwagon upon the continuation of a strong trend).
JB: I trade trending markets. Rising sub industry sectors using a weekly chart and rising stocks
within those sectors.
12.3 What are Your Setups?
A setup is the set of characteristics that enables you to identify a high probability trade prior to
your entry trigger being hit. Try and keep the components of your setups very simple, in order
that you may spot them quickly in real time and assess their potential in an instant. It is
imperative that your setups are very clearly defined and thoroughly tested prior to live trading in
order to determine their probability of success. This cannot be over emphasized, so much so in
fact, that failure to define and test your setups will largely invalidate your trading plan and render
useless all your work thus far. It is one of the characteristics that separate the professional trader
from the ‘shoot from the hip’ gambler.
TW: The setup for my primary strategy comprises the following elements . . . (1. Opening gap is
1% - 3%. 2. The 50-day moving average must be clearly in the direction of the proposed trade. 3.
The gap should be into resistance / support, but not breaching it. 4. Evidence of strong volume
pre-market).The setup for my secondary strategy comprises the following elements . . . (1. Price
must be in a clear up / down trend according to my definition of a trend, which is . . . XYZ. 2. Price
breaks through yesterday’s high / low of the day to make a new high / low. 3. Price pulls back to
yesterday’s high / low but does not breach it).
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
81
JB:
My overall trading strategy is to buy on temporary weakness within a rising market. This weakness
and my entry conditions often occur on low volatility. The aim is to place some science to the old
market saying ‘buy on weakness’. After extensive back testing, I have developed a set of
structured criteria and rules, with the aim of timing the entry prior to resumption of the uptrend.
My entry conditions for short term trading and long term investing are virtually identical. From
then on, it is only the management of the trade which varies.
For my long term investing, I first filter through potential lists of stocks to ensure they pass my
fundamental analysis criteria*.
I then test the shortened list(s) using technical analysis.
I look for two main types of situation, either:
a)
Trend Reversal – i.e. The completion of a downtrend and confirmation that the
uptrend is in place or a
b)
Strong uptrend which has become temporarily oversold, has paused and is now
starting to resume its uptrend
In both situations the setup for a rising sector/share on a weekly chart is:
Prices are making higher highs and higher lows
Prices are closing above a 34 week moving average
Moving average is rising
In situation a) once weekly prices close above the 34 week moving average, I enter the market
on the following Monday.
In situation b) I look for a:
Retracement on a daily chart
Temporary oversold condition using the Relative Strength Index (RSI)
Prices beginning to resume their climb
A ‘blue bar’ volatility entry signal using my JB Charting Template (on daily charts)
My JB Charting software changes the colour of the price bars from red to blue when the market
moves sufficiently from the recent low (and the opposite for red bars from the recent top).
Once all my entry conditions are met, I use the blue bar as my entry signal and enter on the
following day's open.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
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82
For me, it is a sensible place to enter. Rising markets usually correct on lower volume & lower
volatility - so my entry is close to the Initial Stop.
When the market resumes its rise it usually switches back to higher volume & volatility which
should benefit my position
After my blue bar entry signal is generated I then enter the market, provided the price is no
higher than the high of the entry trigger day.
For both a) and b) I place an Initial Stop below the recent major low (see Chapter 5). I also apply
strict money and risk management rules, as discussed in Chapter 4.
This includes my Trade Risk rule such that the distance between the proposed/actual entry and
initial stop loss price must be less than 10% of the stock price (refer 10.9 and 11.8).
* Editor’s note: The subject of Fundamental Analysis is outside the scope of this Trading Plan
Template and is discussed further in Jim Berg’s ‘Stock Trading Handbook – Fundamental Analysis
Combined ‘.
12.4 How Will You Find Your Setups?
If your trading is confined to one or two instruments, this is easy! However, if you trade stocks
listed on the Nasdaq or NYSE, for example, then you will probably need to scan everything listed
on the exchange in order to find the setups that you require.
TW: I will find the setups that I require by . . . (utilizing the bespoke stock scanning software from
ClerverClogs.com. The criteria for each scan is defined by the characteristics of the setups for each
trading strategy).
JB: I find suitable trading opportunities by searching using two strategies:
1)Scroll through sub industry sector charts to determine which are in a rising trend.
Fundamental Analysis: Use MarketScan software to filter stocks in that
sector to find healthy, low risk companies that meet specific fundamental
criteria.
Determine which remaining shares meet my set-up criteria.
2) Scroll through my main watch-lists of shares – Monopolies, Take over targets & Expert’s Picks
12.5 Which Signals Will Trigger Your Entry?
Clear, precise and succinct statements characterize a good trading plan. In answering this
question, it is vital that there is no room left for ambiguity. In other words, if 100 traders read
your answers to this question, would they all try to enter your trades at the same time and at the
same price? This is a tough goal to achieve, but aim for it nonetheless.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
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83
TW: The entry trigger for my primary strategy is . . . (to go long upon breach of the open on a 5
minute chart providing the open is the high of the day (H.O.D.). Reverse for a short trade). The
entry trigger for my secondary strategy is . . . (to go long when the stock resumes the direction of
the trend and hits yesterday’s high on a 10 minute chart. Reverse for a short trade).
JB: In 12.3 I explained my definitions for a rising sector/stock, on a weekly chart:
Prices are making higher highs and higher lows
Prices are closing above a 34 week moving average
Moving average is rising
The weekly chart of the Diversified Financials Industry Group sector (below) met the above criteria
at that time.
Chart 6.1 Setups – Diversfied Financials
The Australian Stock Exchange (ASX), and Sydney Futures Exchange (SFE) were members of the
Diversified Financials Industry Group sector then (Figures 6.2 and 6.3 below). The weekly charts of
both companies (below) also met the setup criteria at that time.
Chart 6.2 Setups – ASX weekly
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
84
Chart 6.3 Setups – SFE weekly
I then look for a retracement on a daily chart and temporary oversold condition using the Relative
Strength Index (RSI)
Figure 6.4 below is a daily chart of ASX that appeared in our newsletter Edition 18 as a potential
notional trade.
A retracement and RSI(7) oversold condition occurred in October.
Chart 6.4 Setups – ASX daily
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
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85
The daily SFE chart, Figure 6.5 below, also appeared in newsletter Edition 18 as a potential
notional trade. Again, a retracement and RSI(7) oversold condition occurred in October.
Chart 6.5 Setups – SFE daily
My entry trigger is based on volatility.
My JB Premium Charts and, for Metastock users, my JB Volatility Charting Template use Average
True Range (ATR) as part of their calculations. I enter when price bars change from red to blue
i.e. the closing price changes provides a blue bar volatility entry signal in a rising uptrend and after
the RSI has given the alert.
The ASX chart, Figure 6.6 below shows a blue bar volatility entry on October 18th.
Chart 6.6 Entry – ASX daily
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
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86
The SFE chart, Figure 6.7 below shows a blue bar volatility entry on October 26th.
Chart 6.7 Entry – SFE daily
______________________________________________________________________________
The Berg Profit Taker, JB Trailing Stop and ‘blue bar’ volatility entry trigger are part of JB Premium
Charts package, which in turn, is part of his complete JB Combo.
For Metastock users, they are included within Jim Berg’s Metastock Volatility Charting Template.
This template is available separately or as part of Jim Berg’s Home Study Course ‘Trading
Strategies with Metastock’ at www.ShareTradingEducation.com.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
87
CHAPTER 7
MORE ON JIM BERG’S
INVESTING & TRADING STRATEGIES
By Jim Berg and John Atkinson
• JB Short Term Portfolio
• JB Short Term Portfolio Position Sizing
• JB Short Term Trading Rules
• Summary of Jim Berg’s Strategies
• Money & Risk Management Summary
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
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88
JB: The following sections 12.6 and 12.7 are based on extracts from Edition 28 of our Investing &
Online Trading newsletter in January 2006. It covers my Short term Strategy rules and money
management considerations for multiple short term stock positions. It is provided here to show
some of the thought processes which went into the initial Trading Plan.
Please note: Question 12.11 then provides an update as of July 2006.
12.6 Jim Berg’s Short Term Trading Portfolio
The Short Term trading rules were developed especially for this newsletter.
We originally started using the same shares which had been selected for the long term investing
Portfolio to demonstrate how some traders grab short term profits. During the lead up to the
October 05 correction, this approach provided better results than the buy and hold strategy.
However, this may not necessarily always be the case. For example, over the past few years there
have been some significant long term profits available by investing in many fundamentally sound
companies in strong uptrends.
Having developed the Short Term rules, we then showed how they could be applied to a number of
other shares.
Table 7.1 Short Term Volatility Entries
For a selection of 15 shares, Table 7.1 shows an average gross return of 10.9% in 37 days - for
14 of the bundle of 15 stocks chosen. The remaining share gave an entry signal which would
have required purchasing on the day the signal was generated, in which case a profit of 10.5%
would also have been achieved in 23 days.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
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Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
89
A 100% win-loss success rate is unusual and we must not expect to repeat this again as past
experience is no guarantee of future performance.
We report on the newsletter short term trading notional portfolio performance each week - as well
as the more conservative notional Long term Investing Portfolio from time to time.
We structure the Portfolio as below:
Notional initial portfolio value $100k
Max trade loss: 10%
Max portfolio risk per trade 1% (‘shark attack’)
Max total portfolio risk: 6%
(‘piranha attack’)
Max in any one position 15% of total portfolio
Max in any one sector: 30%
The main differences for the Short Term Trading Portfolio are as follows:
The use of watchlists of companies recommended by analysts/brokers.
We plan to hold up to 9 positions at any time. We discuss the reasoning below
For simplicity we will adopt a standard notional trade size of $9.5k per trade
(again see below). This will save us from having to repeat explanations on how
we calculate position size each week, particularly as we expect to be turning
over each of the notional trades within an estimated 1-6 weeks, subject to
entry and exit signals being generated.
Trade selection criteria using Jim Berg’s Short Term Trading Rules repeated
below.
12.7 Short Term Trading Portfolio Position Sizing:
The following notes are provided as extracts from our diary notes, discussions and emails between
Jim and John in early 2006 as we planned the structure for the Short Term portfolio. They show
the thought processes we went through.
We start with the need to consider brokerage as this would be a real cost to consider, particularly
with frequent short term trades. John and Angela trade on the Etrade platform so we will use this
as an example for our notional portfolio.
Their rates are about AU$20-$30 +GST per transaction, depending on trading frequency. For
simplicity, we will assume total return brokerage on buying and selling will be an average of say,
$60 including GST.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
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90
To provide maximum interest to our readers, we wanted to include as many shares in the notional
portfolio as possible. Immediately we ran into a challenge. We call this the ‘kid in the lolly shop
syndrome’.
It’s a mistake too many novices make, wanting to invest in as many stocks as possible to ‘spread
their risk’ and be in anything that ‘moves’. While we also do not advocate doing the opposite
extreme i.e ‘having all your eggs in one basket ’ by sinking all funds into one position - there is a
better approach, as we will now explain.
a) Let’s Test 15 Notional Positions
Let’s suppose we were to have chosen a total of 15 positions in the portfolio. Apart from the
increased workload in monitoring so many positions each night, the calculations to come up with a
constant position size do not fare well, as shown below:
¾
If we had divided our notional $100k equally into 15 – that would have allowed us $6,667
gross i.e. $6,607 net after return brokerage per trade, say $6500.
¾
Above we stated that our maximum Trade Risk is planned to be 10%. Many may be in the
order of 5%. Let’s say on average 7% trade risk.
¾
Then each notional trade on average would put at risk $6,500 x 7% + return brokerage =
$515. Each position would be risking 0.52% of our total portfolio, so this fits well within our 1%
maximum ‘shark attack’ rule.
¾
However 15 positions each risking $515 = a total initial risk of $7,725 i.e. 7.7%. This fails
our 6% max ‘piranha attack’ rule.
¾
We would need to scale back to satisfy this limiting criterion of total combined portfolio risk
of 6% to only $400 risk per trade on average. This means we would need to reduce individual
notional position sizes to $4,850. The corresponding individual portfolio risk would each then be
7% x $4.85k + return brokerage = $400 i.e. 0.4%.
¾
But wait - there’s more! By having so many positions, not only would we have reduced our
position size down to only $4,850, but we would have also brought in 2 other complications:

We would have had 15 x $4,850k positions = $72.8k (excl bro) , with ~ 27%
still in cash

If the notional short term trades were to make 10% profit, then 10% of
$4,850 = $485 gross, out of which return brokerage of $60 would have
absorbed $60/$485 i.e. 12.4% of the gross profit per trade to brokerage
The idea of 15 notional positions was therefore discarded quite quickly.
b) 8 Notional Positions
Many experienced traders/investors adopt a maximum of about 8 to 12 shares in their portfolio.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
91
For simplicity, to save repeating the calculations for various alternatives we considered, we will go
straight to the conclusion. For the Short term Portfolio, we will use the following constant
position sizing model in future:
Maximum 8 positions
Each position $9,500k
For a maximum 10% trade risk and an average trade risk of, say 7%:
Av. Individual trade risk = 7% x $9.5k + $60 bro = $725 = 0.73% i.e. <1%of
$100k portfolio so passes our 1% rule
Total portfolio risk = $725 x 8 positions = $5,800 = 5.8% i.e. <6% of $100k
portfolio ie passes our 6% rule
Total 8 x $9.5k +bro = ~$76.2k i.e. $23.8k in cash
If notional short term trades were to make 10% profit, then 10% of $9,500 = $950
gross each i.e. return brokerage of $60 would have absorbed 60/950 i.e. 6.3% of the
gross profit per notional trade to brokerage.
12.8 Short Term Trading Rules
For completeness, we repeat the Short Term rules developed for the ‘Investing & Online Trading’
newsletter as follows:
Short-Term:
Rising trend on weekly chart
RSI(7) oversold (daily)
Volatility Entry (daily)
Initial Stop – below the recent low (max 10% from entry)
Trailing Stop – 2nd consecutive close below stop
Berg Profit Taker (minimum 10%)
Close above Profit Taker - exit following day’s open
Or Exit with 15% Profit
Two examples using Short Term rules:
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
a)
92
BRAMBLES (BIL)
had an RSI (7) temporary oversold condition in October and a blue bar volatility entry on October
26th. Entry on the following day’s open at $8.48 and Initial stop set below the recent low at $7.97
(Chart 7.1)
Chart 7.1 Short Term Trading (1) - BIL
Exit with profit on November 29th at $9.76. Result: + 15%
b) Suncorp-Metway (SUN)
had an RSI (7) temporary oversold condition in December and a blue bar volatility entry on
December 21st. Entry on the following day’s open at $19.92 and initial stop below the recent low
at $19.27 (Chart 7.2).
Chart 7.2 Short Term Trading (1) - SUN
Price closed above JB Profit Taker on January 27th. Close position on following day’s open at
$21.91. Result: +10%
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
93
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
12.10 Summary of Jim Berg’s Investing & Trading Strategies
In this ebook, Jim Berg has responded to Tim Wilcox’ questions based on his two investing
strategies. Before we close this chapter, we now bring together three of Jim Berg’s strategies, in
the following summary shown overleaf as Table 7.2.
It is important to realize that the starting point for entry remains virtually the same for all 3
strategies. The money and risk management rules of 10.13 are also simplified for the short term
trading portfolio, as described in 12.7 above.
Table 7.2 Summary of Jim Berg’s Investing & Trading Strategies
Long term Investing
Trend Reversal
Oversold in
(A)
rising trend
(B)
Fundamental
Analysis
Set Up Conditions
• Refer Jim Berg’s
‘Stock Trading
Handbook’
¾ Sector & Share
• Trade with trend of
weekly chart (34 week
moving average)
• Moving average rising
• Close > moving
average
Timing of Entry
Monday opening
Stops:
• Initial stop
Recent low (pivot
point)
Support/resistance
level
Exit after one week’s
close below
Volatility Trailing Stop
(weekly)
(After second
consecutive weekly
close below trailing
stop)
(max 10% below
entry)
• Trailing stop
Short Term
Trading
As for (A)
As for (A)
¾ Sector & Share
• Trade with trend
of weekly chart (34
week moving
average)
• RSI(7) oversold
(daily)
• Volatility Entry
Signal (blue bar)
As for (B)
• Enter at no
higher than high of
trigger day
As for (A)
• As for (B)
As for (A) except
exit after one
day’s close below

As for (A)
Volatility Trailing
Stop (daily)
( After 2nd
consecutive daily
close below trailing
stop)
Profit Taking
N/A – exit governed by
stop loss conditions

As for (A)
If Close above
JB Profit Taker (@
min 10%) then exit
after following
day’s open
OR exit when
15% Return
$$ Management –
Position Sizing
Refer Chapter 4

As for (A)
Refer 12.7
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
94
12.11 Jim Berg’s Money and Risk Management Update and Summary
In Chapter 4 we discussed various methods for controlling money and risk management including
portfolio allocation and trade optimization. We showed how this has been applied and enhanced
since the early days of our single notional newsletter portfolio, which originally covered both long
term investing and short term trading.
In Question12.7 we showed the thought processes in how we structured the money and risk
management in the dedicated notional short term trading portfolio, which we started in early
2006.
The following updates are current as of March 2008 and may be amended at a later date in the
newsletter if warranted.
a) Long Term Investing Notional Portfolio
In the early days of our ‘Investing and Online Trading’ newsletter we showed a notional long term
portfolio, with stock selection and management criteria similar to those which Jim uses for his own
long term self managed Superannuation /retirement fund.
As many of the notional trades progressed slowly in their up trends, there was not much to report
from one week to the next. Accordingly, we chose to show a short term trading portfolio rather as this allowed us to feature more stocks in a shorter time frame. We could then better
demonstrate Jim’s strategies on how he selects which stocks to buy, when to buy and when to sell.
Jim’s entry criteria are virtually identical for short term trading and long term investing, so from
time to time we now feature the progress of a notional long term portfolio, with shares selected
from the short term portfolio but then managed using weekly charts and weekly stops. As one
share is exited, we then choose a replacement from the next share selected at that time for the
short term portfolio
Jim Berg’s fundamental analysis scan described in his ebook ‘The Stock Trading Handbook –
Fundamental and Technical Analysis Combined’ is designed to target the largest cap stocks in a
sub industry sector which satisfy his fundamental analysis criteria. (It is made available for
newsletter members in their library).The resultant list is then filtered further using Jim’s technical
analysis strategies detailed above to find the handful of large caps stocks which meet both his
fundamental and technical analysis criteria at any point of time.
If we were to structure the notional long term portfolio with 60% large caps, 28% mid caps and
12% small caps as per Question 10.13, then we would find that once the 60% large caps
component had been filled that we would have the majority of the remaining 40% of portfolio
vacant for much of the time. Therefore for the long term portfolio since July 2006 we have
ignored the allocation split of large/medium/small caps.
In preference we have included those stocks which match Jim’s fundamental and technical criteria,
regardless of their size. However, we do apply the Aspect Financial Risk Ranking detailed in 10.13
such that we will only include those stocks with Aspect Risk Ranking of 1, 2 or 3 and omit any
of 4 or 5. This rule helps ensure we do not include companies with above average Risk.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
95
In addition we incorporate the following money and risk management rules described in Chapter
4:
i) Max 10% Trade Risk – between planned entry point and Initial Stop Loss
ii) Maximum of 15% of portfolio allocated to any position
iii) Maximum of 1% of portfolio at risk in any individual notional trades
iv) 6% total combined risk of all notional trades – portfolio to be closed if it drops 6%
from a recent high
v) 30% sector risk
b) Short Term Trading Notional Portfolio
Most short term traders tend to focus on small and midcap stocks as they are more volatile - and
that is what most look for in a short term system.
Inexperienced traders in particular need to pay attention to apportioning and balancing their
portfolio within market capitalization. Otherwise they could finish up with a portfolio of ‘pocket
rockets’. While these are potentially attractive while the market is positive, they also have the
potential to demolish unsuspecting traders’ accounts very quickly when the market turns down.
So, to ensure common sense is maintained, we introduced the following Money and Risk
Management Rules for the short term trading notional portfolio progressively since July 2006:
1)
Maximum 8 stocks at any time
2)
At least 4 stocks in ASX100
3)
No more than 4 stocks outside the ASX100 at any time
4)
Rules i) to v) as per Long Term Investing notional portfolio. For example,
the 10% Trade Risk Rule will keep us out of highly speculative ‘penny dreadfuls’ which
can move both ways that amount within minutes
5)
No Position size to be larger than 10% of average volume over the last 5
days. For easy reference, Metastock users can simplify the analysis by creating an
indicator to overlay on their charts of volume display - The formula is Mov(V,5,S)
We have spent a lot of time discussing Money and Risk Management in this ebook. This is because
we believe that this skill when coupled with strong discipline are just as, if not more than,
important than the stocks you buy.
Many traders load up on the latest software and as many indicators as they can find in an attempt
to improve their trading results. There is an easier way. Master the topic of Money and Risk
Management and you will find you can improve your returns ……. without necessarily having to
win more trades.
______________________________________________________________________________
Further examples on using Jim Berg’s long term investing and short term trading strategies are
covered in his ‘Stock Trading Handbook’ (part of his complete JB Combo Package, & Home Study
Course for Metastock users ) and his mentoring style ‘Investing & Online Trading’ newsletter.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
96
CHAPTER 8
RECORD KEEPING
& DISCIPLINE
By Tim Wilcox, Jim Berg & John Atkinson
•
After The Market Closes
•
Discipline
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
CHAPTER 8.
97
Record Keeping & Discipline
13. After the Market Closes
13.1 Once you have finished trading for the day, it is tempting to crack open a bottle either to
celebrate or to drown your sorrows! Your trading plan may or may not allow for these activities.
Either way, it must include examining both winning and losing trades. It is essential that you know
what you did right and, more importantly, what you did wrong.
13.2 Have You Recorded Today’s Trades?
Recording all your trades is a must and is something all professional traders do routinely and
comprehensively. Details to write down include: entries, exits, stops, targets, support and
resistance levels, open / close, high / low of day, duration of trades and key lessons learnt.
TW: After the market closes, I will . . . (1. examine each trade and write down the following
details . XYZ. 2. Annotate a chart and back up same on C.D. for future reference).
JB: After the market closes I:
¾
¾
¾
Record all new entries and exits
Enter/delete charts from portfolio layout
Download the day’s data
In his book ‘Come into my Trading Room’ Dr Alexander Elder wrote:
“Keeping good records is the single most important contribution to your success. If you
maintain scrupulous records, review them and learn from them, your performance will
improve. If your money management is in place to ensure survival during the learning
process, you’re sure to be a success……..Records are more important to your success
than any indicator, system or technical tool. Even the best system is bound to have
some holes, but good records will allow you to find them and plug them up……….Show
me a trader with good records and I’ll show you a good trader.”
There are many Portfolio Management programs available. Some are simplistic, such as those
provided free by most online brokers, which mainly show your current positions and open profits.
Various account keeping packages, such as Microsoft Money and Quicken are available for
purchase.
At our site we also feature purpose-built money and risk management software packages by
Stator-AFM and JBL Risk Manager in Australia and ManusRisco in USA , with free trials available for
both.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
98
13.3 Did You Execute Your Trades According to Your Plan?
It is tempting to gloss over this question. Don’t! If you are not routinely executing trades in
accordance with the plan, then you either have a serious problem with self-discipline or there is a
problem with your plan. Either way, you have a BIG problem and one that needs to be addressed
immediately.
TW: In addition to recording all my trades, I check to . . . (confirm that all trades are executed in
accordance with my plan. If they are not, I will assess if the reason is a fault with the plan itself or
a discipline issue and take action accordingly)
JB: All trades are executed according to the plan
13.4 Have You Completed Your Trading Journal?
Trading and emotions are like oil and water. Or at least they should be! Your trading plan is
designed to ensure that you trade unemotionally. If you struggle with this, then consider a
mechanical strategy. Your trading journal is the one place where you can vent your emotions and
express your feelings.
TW: I regularly update my trading journal with . . . (my thoughts and feelings about each trade
and my conclusions about the day as a whole).
JB: My trading is mechanical so I do not need to record my feelings at the end of the day. I put a
lot of thought into creating and testing my system. In the middle of a trade I don’t think about
what I am doing, I react to price movements by following the rules.
14. Discipline!
14.1 Having a comprehensive trading plan with detailed entry and exit criteria and excellent risk
and money management procedures all count for nothing if you lack the necessary discipline to
implement them. This section is about ensuring that you stick rigidly to the commitments that you
have made to YOURSELF in the previous nine units. Adhering to your plan is relatively easy during
periods of profit. However, the real test will be your ability to stick to it when your trading is not
going so well.
14.2 Back Test or Forward Test?
Before you commence live trading, it is important to test your trading strategy. If you are a
mechanical trader, this can be done mathematically with programs like TradeStation and, even,
MS Excel. If you are a discretionary trader, manually back-test it if at all possible and then
‘forward-test’ by paper trading your strategy. Whilst paper trading will not reflect how you will
trade in real time, it will indicate whether or not your basic strategy is unprofitable or, hopefully, a
potential goldmine.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
99
TW: Before I commence ‘live’ trading with real money, I will . . . (back test and/or forward test
my strategies to ensure that they are tradable and meet my profit objectives without exceeding
my risk and money management parameters).
JB: I thoroughly back-test on two years of data manually and further test in real time.
14.3 What are Your Promises to Yourself?
These are promises that are designed to enforce self-discipline. What sanctions will you impose
upon yourself if you break one of your trading rules? Worse still, what about if you break two in a
row?
TW: If I break one of the rules detailed in my trading plan I will . . . (stop trading for a full day
and focus on the reasons why there was a breach of discipline). If I break two of the rules detailed
in my trading plan I will . . . (stop trading for two full days and focus on the reasons why there
was a breach of discipline).
If I break three of the rules detailed in my trading plan I will . . . (stop trading indefinitely until I
address the reason for my poor discipline and, if necessary, amend the trading plan).
JB: I promise to follow the rules and I don’t break them ever.
Food for thought: a post by PeterM at the Stockmeetingplace.com forum suggested designing a
poster with Discipline in big red letters across the centre, surrounded by home truths/phrases of
wisdom such as:
It is quite common to have a string of losing trades
Losing trades are simply a by-product of the business of trading
Always follow your trading rules - not just this one time
Always action the stop loss
Always act in your best interest
A person with good self discipline but poor trading method will outperform a
person with poor self discipline using the best trading method available
14.4 What Questions do You Ask After a Winning Trade?
After a winning trade, there are some questions that need to be answered before moving on to the
next trade. Did you do everything right; was the trade well planned and executed? Although it was
profitable, could you have extracted more profit whilst adhering to your exit strategy? Your next
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
100
trade could be a dud: are you sufficiently calm and relaxed to continue trading or should you take
a break?
TW: After a winning trade I will . . . (1. guard against over confidence and ensure that my attitude
remains consistent. 2. check to see that I did everything as well as I could. 3. remind myself that
executing the trade in accordance with my plan is more important than the outcome of the trade).
JB: After a winning trade I record the results and check that all rules were followed.
14.5 What Questions do You Ask After a Losing Trade?
Repeat the process above after a losing trade. It is acceptable, desirable even, to regard a losing
trade as a successful trade – IF (and it is a big if) - you adhered to your plan. You know that you
will have losing trades; all traders have them. There is no reason to lose confidence as long as you
manage the losses and keep them small. Are you ready to continue trading in a calm and relaxed
way or are you now subconsciously chasing the loss?
TW: After a losing trade I will . . . (1. examine the trade and learn what I can from it. 2. check to
ensure that I executed all aspects of the trade in accordance with my plan. 3. evaluate my state of
mind to ensure that I am calm, relaxed and ready to enter the market again with an unemotional
and professional attitude).
JB: After a losing trade I record the results and check that all rules were followed.
14.6 What Steps do You Take to Learn More About Trading?
Practical experience is, of course, essential. However, it would be wise to complement this with
learning and studying. The trick here is to plan a course of study to ensure that your valuable time
is spent in a focused way and advances your knowledge as quickly as possible. Trading is such a
huge subject that one way or another, it is inevitable that you will read, watch and listen to a mere
fraction of the information available. It is vital to ensure your precious time is concentrated on the
‘right’ material.
TW: I will ensure that of the X hours per week devoted to trading . . . (Y hours are spent studying
the subject. Of this time, I will devote A hours to reading books, B hours on T2W and C hours on
other media).
JB: My continuing education is through the media, books, weekly research for our newsletter, by
John Atkinson and I and reading other newsletters occasionally.
I also communicate with other students of the markets to exchange ideas and get a different
perspective on trading strategies.
I freely share my knowledge with other readers of our newsletter in our ‘Solving Your Trading
Problems’ section of our newsletter and answering traders’ questions on one forum only, that
being the unique ‘Ask Jim Berg’ section at www. ShareScene.com.
We conclude this chapter with the following extract from Edition 11 of our Newsletter:
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
101
The Power of Discipline
Self discipline is not something you acquire. It is something you use. When you make use of it,
self discipline will help to bring about anything you can imagine. And it is yours to use whenever
you choose.
You don't need to take a certain course or read a particular book or attend a weekend workshop in
order to benefit from self discipline. The benefits of self discipline come, not with any special
knowledge or skill, but with simple practice.
When you decide to discipline yourself to achieve, you achieve. When you decide to make
consistent use of discipline in your life, you're able to fulfill the best of your possibilities.
Put self discipline to use, and you can reach your dreams. Put self discipline to use, and no
obstacle can stand in your way for long.
The power of self discipline is yours to use when you have a reason that's meaningful enough to
you. So find that reason, lock your focus onto it, and you're already well on your way.
Ralph Marston
Copyright 2006 Ralph S. Marston, Jr. Used by permission. Originally published in "The Daily
Motivator" at www.dailymotivator.com
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
102
CHAPTER 9
20 GOLDEN RULES
By Tim Wilcox, Jim Berg & John Atkinson
•
Golden Trading Rules
•
Tim Wilcox’ Top 10 Golden Rules
•
Jim Berg’s Top 10 Golden Rules
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
103
CHAPTER 9 20 GOLDEN RULES – Two Common
Perspectives from across the Globe
15. Golden Trading Rules
Tim Wilcox is primarily a very short term trader in England in the Northern Hemisphere. In
contrast, Jim Berg lives not far from the southern tip of Australia in the Southern Hemisphere. He
prefers a conservative longer term investing approach, with some short term trading of a small
part of his portfolio as ‘sport’. Two traders living almost poles apart, yet they independently have
developed a list of 10 Golden Trading rules which are similar as we now see.
15.1 What are Your Top Ten Golden Trading Rules?
Your rules should be ones that are pertinent and meaningful to you. Here is a list to get you
thinking. Some of your rules may be on it, others not. For example, one which is omitted here but
is likely to feature on many lists is: “Trade With The Trend: No Trend, No Trade!” It is an excellent
rule, unless you are a trader whose main strategy is to fade the intraday trend or trade a longerterm retracement.
For this section we will list Tim Wilcox’ 10 Golden Rules, then follow with Jim Berg’s – two
independent traders trading different markets and time frames and physically located on opposite
ends of the world (Tim is in UK and Jim is Australia)- yet you will see their 10 Golden Rules have
common ground.
TIM WILCOX’ 10 GOLDEN RULES
# 1. PROTECT & PRESERVE YOUR CAPITAL!
Inexperienced traders enter the markets focused on how much money they stand to make.
Professional traders do the exact opposite; they focus on how much money they stand to lose and
how they will ensure that any loss is kept to an absolute minimum. Follow the lead from the
professionals: protect and preserve your capital.
#2. ALWAYS SET A STOP LOSS. ALWAYS!
One way to help achieve rule No.1 is to set a stop loss. If practicable, do this before opening a new
position. Never rely on a mental stop loss. This is the sole preserve of a rare breed of trader: one
who is very experienced and consistently profitable.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
104
The stop loss lies at the heart of all risk management strategies and is absolutely vital to ensure
that you ‘cut your losses short’. So, no arguments: always set a stop loss.
#3. CUT THE LOSSES SHORT – LET THE PROFITS RUN!
Cutting the losses short is achieved by always having a stop loss! Additionally, continually ask
yourself this question: ‘had I not entered this trade when I did, would I want to be in it now’? If
the answer is no, then exit immediately. You do not have to wait for your stop to be triggered
before exiting a trade! Letting the profits run is down to money management and an excellent exit
strategy. Fine-tune these elements of your plan to cut the losses short and let the profits run.
#4. TRADE WHAT YOU SEE – NOT WHAT YOU THINK!
Egos and trading do not mix. The little voice inside your head that tells you what the market is
going to do next needs to be gagged whilst trading. Whilst you are listening to him / her, you are
not paying attention to what the market is revealing to you. Focus on your charts, your indicators
if you use them and the price action. Look at this information and trade what you see, not what
you think.
#5. NEVER CHASE YOUR LOSSES. EVER!
After a losing trade it is imperative that the emotions are kept at bay. This can be
hard to do, especially if it is a silly error that led to the loss. When you re-enter the market, you
will be trading for revenge. If you chase your losses, determined to recover them, the
consequences are likely to be disastrous. Almost inevitably, this results in more losses, more
emotions and so on. So, never chase your losses. Ever!
#6. NEVER AVERAGE DOWN. EVER!
This follows on from rule No. 5. Commit both these ‘sins’ and you run the very real risk of a blowup. The compiler of this document decided to put this theory to the test and lost 70% of his
account on just one trade lasting 24 hours. Averaging down is a tactic deployed by long term buy
and hold investors and should never be practiced by traders. If the trade goes against you, get out
fast. Never average down.
#7. KEEP EXCELLENT RECORDS!
Strategically, it is essential to keep records of all your trades. Not just the profit and loss, but also
the reasons why you did what you did when you did. Additionally, many traders keep a journal to
record how they felt about each trade. Records act as your personal GPS device and enable you to
determine how well you are sticking to your plan.
#8. MAINTAIN DISCIPLINE!
Keeping excellent records will also enable you to see at a glance just how disciplined you are in
your trading. Failure to address issues of self-discipline will, almost certainly, be reflected in your
trading performance. If you fail consistently in this regard, you have two options:
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
105
1. Consider switching to a mechanical strategy, as computers have an exemplary track record
when it comes to discipline.
2. Give up trading – it is not for you.
#9. KEEP IT SIMPLE!
Many top professionals use disarmingly simple strategies that are executed with the bare minimum
of indicators. Their focus is to maintain their self-discipline and to trade according to their plan.
Make it easy on yourself and keep everything as simple as possible.
#10. PLAN THE TRADE – TRADE THE PLAN!
Trading is not gambling; it is a business. However, the trader who enters the markets without a
well conceived detailed and thoroughly tested trading plan is no better off than the punter who
throws darts at a board blindfolded in order to determine which horse to back.
JIM BERG’s 10 GOLDEN RULES
#1. SET MEASURABLE GOALS
- and continuously visualize yourself reaching those goals.
Every choice you make has consequences. It is your CHOICES that determine the RESULTS you
get.
Take responsibility for your own life. Don’t blame other people or circumstances for where you are
or how you got there
Monitor and measure your performance regularly.
Just before you hit one goal, start to set the next one - so you always have something to shoot
for.
Reward yourself along the way – it creates a positive reinforcement cycle.
Never be afraid to succeed. Set high goals, believe in yourself, get motivated and achieve them.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
106
#2. DEVELOP & ADHERE TO A WRITTEN TRADING PLAN
There is a well worn cliché “If you fail to plan then you’re planning to fail”. Unfortunately for
far too many traders and investors, this is very true.
We cannot emphasise strongly enough the importance of having a Trading Plan which, at the very
minimum, should list how an investor will:
Evaluate market conditions
Choose investing and trading strategies
Select which share, fund, index etc to buy
Detail methods for:
•
Entry and exit conditions
•
Money and risk management, including Position Sizing
•
Stop Loss calculations
•
Protecting profits
•
Setting profit targets
Trading Plans must be written down, kept in a prominent position and most importantly, followed
with discipline.
#3. LIMIT POSITION SIZE & NUMBER OF POSITIONS
Take the time to plan and calculate your individual position size risk and your total portfolio risk
before entering any new trade (e.g. using the Atkinson Portfolio Planner & Trade Optimizer).
Use the 2% Risk Rule (or 1% or 0.5% whichever you choose) to protect yourself against a ‘shark
attack’ in any trade
Use the 6% Risk Rule to protect against a ‘piranha attack’ of being stripped to the bone.
Make sure that you can actually live with the risk you have calculated i.e. that if your stop is
triggered at that level, you will actually exit without flinching or freezing.
If not, reduce the position size to be within your ‘flinch zone’
#4. PROTECT CAPITAL to SURVIVE - PROTECT PROFITS to THRIVE
The first goal of money management is survival.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
107
Risk control is an important key to success. Successful traders learn that losses are a part of doing
business. No one succeeds at trading without being wrong many times. It is how quickly losses are
taken, and their magnitude, which is important.
Trade for steady gains and small draw-downs to establish a good track record
Investing is a business. The goal of the successful trader is to trade well.
Successful traders have realistic expectations. Money will be a by-product of conducting business
successfully.
#5. SELL YOUR WORST PERFORMING POSITION
Never limit your thinking on how much you can make - but limit very closely the amount you can
lose.
If you suffer a series of losses, reduce your exposure, always selling losing positions and holding
winning positions until they provide an exit signal.
If a new potential trade comes to your attention but you don’t have funds available, do not
impulsively cut out of a trade that’s performing well to access funds for the next trade.
Some traders have a rule to ensure they sell their worst performing positions rather than their
best performing. This way they always keep the strongest horses in their stable.
#6. TRADE WITH WEIGHT-OF-EVIDENCE
Weight-of-evidence means a Company meets a number of fundamental and technical criteria
before inclusion in a portfolio.
Create your own list of fundamental and technical criteria, then ensure that “…all the planets are
aligned..” i.e. that they are all met before entering the market.
Resist the urge to make exceptions “just this once”, as this leads to undisciplined trading.
#7. SELF AWARENESS IS THE KEY
The successful trader is patient. Knowing when not to trade is often as important as when to trade.
The successful trader does not get attached to their trades or a particular group of shares, but
remains unbiased and diversified
Choose a trading timeframe that suits your personality and philosophy of trading. This will ensure
that your trading fits comfortably with your daily activities, family and lifestyle.
#8. WALK A MILE WITH THE CROWD THEN STEP BACK
This is a quote from Daryl Guppy’s ‘Share Trading’ book. Successful traders think independently.
They do not follow the crowd.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
108
Successful traders do not fight the trend. Good money is made well off the lows and before the
highs. Predicting tops and bottoms is the road to ruin.
Wait for confirmation that the stock price is moving in your direction.
Then when your entry signal is generated, hitch a ride with the crowd. When you’re satisfied with
your profit or when your exit signal is generated, exit and look for the next trade.
#9. RESPECT YOUR ANALYSIS
- and take action.
One of the easiest ways to develop a trading strategy is to “borrow” a system from another
trader. The borrowed system is used as a base to test and eventually build a trading strategy that
suits the investor’s personality and trading philosophy.
It is extremely important that the investor feels confident their trading system suits them and they
believe their investment strategies will make money.
Gaining this confidence and belief is accomplished by testing the trading system on both historical
and real time data
Having chosen a proven trading system to ‘borrow’ which matches your personality and lifestyle, it
is important not to trade with real funds until you feel comfortable that you have back tested it
and are confident that you can trade the system profitably.
The way to do this is to paper trade without using real money. Do all your analysis; trade
selection; set initial stops; calculate position size; place your hypothetical buy & sell orders; keep
a trading diary; monitor your positions; move up your trailing stops; enter your records – all as if
you are trading the market for real - but do it on paper only.
Eventually there comes a time to trade with real money. If the system you have borrowed or
developed and tested is profitable then respect your analysis and take action – enter and exit
with your calculated position sizes; monitor your performance and keep accurate records for
review.
#10. DISCIPLINE, DISCIPLINE, DISCIPLINE
The following is a quote from one of the classic books on trading discipline, The Disciplined Trader,
by Mark Douglas. It is republished here with his permission and our thanks:
“Execute your losing trades immediately upon the perception that they exist. When losses are
predefined and executed without hesitation, there is nothing to consider, weigh or judge and
consequently nothing to tempt yourself with. There will be no threat of allowing yourself the
possibility of ultimate disaster.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
109
If you find yourself considering, weighing or judging, then you are either not predefining what a
loss is or you are not executing them immediately, in which case if you don’t and it turns out to be
profitable, you are reinforcing an inappropriate behaviour that will inevitably lead to disaster. Or if
you don’t and the loss worsens, you will create a negative cycle of pain that once started will be
difficult to stop.” Mark Douglas.
No one knows where markets are going. Successful investors react to price movements. They are
not forecasting, but working with the probability of historical price action repeating itself in the
next timeframe. They have a specialised trading strategy and the discipline to follow the plan.
We thank Dr Brett Steenbarger again for writing the foreword to this ebook and again now for
concluding this chapter with an excerpt from an article in our newsletter entitled ‘Trading by Rules
– a Psychological Perspective’:
“It is common to hear traders assert that mental self-control is the key to stock market and
futures profits. This article is suggesting that the reverse is equally true: Staying grounded in
solid trading rules and systems is one of the most powerful ways of maintaining a positive trading
psychology. When we are rule-governed, we are in a mental state that promotes efficient
perception, problem solving, and action.
Indeed, training ourselves to stay rule governed during trading rehearsals is an effective strategy
for cultivating rule governance in real time. Different rule systems may work better for different
traders, depending on time frames and markets traded.
My own rules make considerable use of such statistics as the NYSE TICK, the number of stocks
advancing vs. declining on an intraday basis, and the number of stocks making new intraday highs
and lows. Such rules would be poorly suited to the trading of agricultural commodities, but have
proven useful in trading intraday swings of the equity indexes.
Other rules, such as pure price-based breakout methods, possess wider application across markets
and might allow for the holding of positions for longer time frames to maximize potential gains.
Ultimately, the rules/systems you follow—and their linkage into coherent trading plans—must be
well suited to your personality, including your risk-tolerance. Researching the performance of your
system—discovering its weaknesses and strengths—and trading them with small initial positions is
of immense help in building your trading confidence and ensuring that the rules work for you.
If we believe many of the “Wizard” traders interviewed by Jack Schwager, then a key to trading
success is surviving one’s own learning curve. Identifying the system(s) that work for you,
translating them into consistent trading strategies, and learning to be comfortable with these is an
important part of that process.”
______________________________________________________________________________
Brett Steenbarger Ph.D. (www.brettsteenbarger.com) is Associate Clinical Professor of Psychiatry and
Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY and author of The Psychology of
Trading (Wiley, 2003) and ‘Enhancing Trader Performance’ (Wily 2007)..
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
110
CHAPTER 10
TRADING PLAN TEMPLATE
SUMMARY & CONCLUSION
By Tim Wilcox, Jim Berg and John Atkinson
•
Tim and Jim’s Wrap Up
•
Trading Plan Template Summary
•
Bibliography
•
Glossary
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
111
CHAPTER 10 TRADING PLAN TEMPLATE SUMMARY &
CONCLUSION
If you have got this far and answered all the questions – CONGRATULATIONS! You are now among
a minority of traders who have a detailed and tested plan. Your future success as a trader is by no
means guaranteed, but by completing this template and creating your very own bespoke trading
plan, the odds have shifted significantly in your favour.
Now it’s your turn to create your Trading Plan. To help you get started, we conclude this ebook
with a summary of the main questions we have covered in this Trading Plan Template in a tabular
form.
As John Atkinson wrote in the Introduction: “ So it is with the utmost conviction that I now urge
you to not only read this ebook, but then to take the time to sit down and actively create your own
Trading Plan step-by-step using this Template, together with any other information you may have
accumulated. Take your time. Believe me it will be worth your effort. It will probably be the most
valuable research time you ever spend in the market.”
Copy or print off the following sample summary of questions and use it as your starting point.
Increase the space required to suit your Plan. Go back and use the sample answers we have given
as a prompt to help you work through your Pan to suit your personality, goals and lifestyle.
If you have any constructive criticism about this document, or aspects of your own plan that are
not included in this template that might benefit others, then please post your views and ideas on
Tim Wilcox’s thread at Trade2win.com. or at ‘Ask Jim Berg’ at www.sharescene.com
TW: In my original ebook I wrote:
“Roll Up, Roll Up . . . The perfect complement to this document would be a handful of completed
trading plans created using the template. In an ideal world, there would be at least three: one for
index futures traders, one for forex traders and one for stocks traders.
Each of the plans would also cover the three main timeframes: day trader, swing trader and
position trader. Self evidently, trading plans contain a lot of highly personal information that,
understandably, most traders would not want published on a public forum like T2W. Such details
could be blanked out and your anonymity could be guaranteed to protect you from e-mails and
private messages etc.
Real plans created using the template would put ‘flesh on the bones’ of the template and provide a
valuable insight into how different traders interpret it.
So, please let other traders benefit and learn from your plan. You have nothing to fear and the
wider trading community has much to gain.”
My heartfelt thanks to Jim Berg and John Atkinson for doing such a great job of adding Jim’s
proven stock trading system from their Investing & Online Trading newsletter and Jim’s Stock
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
112
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
Trading Handbook.
My sincere thanks also to Mark Douglas, Daryl Guppy, Alan Hull, Ralph
Marston Jr. and Dr Brett Steenbarger for their valuable contributions to this ebook and Appendix.
The invitation remains for index futures and forex
[email protected] or through the link above.
traders
to
contact
us
at
Good luck and happy trading!
Tim Wilcox
November 2008
JB: We echo Tim’s thanks to the authors mentioned above. Also our thanks to Kevin Burke, a
private trader and recent newsletter member who spent many late night hours proof reading the
draft of this ebook and provided several useful suggestions.
Tim, John and I hope that this Trading Plan Template will have helped both novice and
experienced traders understand the importance of having a Trading Plan. Secondly, that between
us we have provided both the impetus and the means for you to now create or update your own
Trading Plan - and that you will then go on to adhere to it.
This Template is the skeleton. Now it really is up to you to add the meat. Where to start? You may
choose to borrow the ideas we have presented in this manual or use the system you may have
developed or borrowed already.
Importantly, test and measure everything historically on paper and develop your skills and
confidence before contemplating investing even a small amount of real funds in the market.
Trade what you see and not what you feel - and always with Weight-of-Evidence
Jim Berg
November 2008
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
113
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
TRADING PLAN
TEMPLATE SUMMARY
Ref.
Query
5.3
Why do You Want to
be an Investor or
Trader?
5.4
What Sort of Trader
or Investor are You?
5.5
What are Your
Strengths and
Weaknesses?
5.6
Are You in the Right
Frame of Mind to
Invest?
5.7
What are Your
Income Targets?
6.2
What are Your
Annual Trading
Goals?
6.3
What are Your
Monthly Trading
Goals?
6.4
What are Your
Weekly Investing
Goals?
6.5
What are Your Daily
Investing Goals?
Response
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
114
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
TRADING PLAN
TEMPLATE SUMMARY
Item
Query
7.1
Which Markets will
you Trade or Invest?
7.2
Which Instruments
will You Trade or
Invest?
7.3
Which Timeframes
will you Trade or
Invest?
8.1
Which Financial
Vehicle will you Use
to Trade or Invest?
8.2
Which Broker and
Trading Platform
will You Use to
Trade or Invest?
Which Software &
Data Feeds will you
Use to Trade or
Invest?
8.3
9.2
What is Your Daily
Pre-market Routine?
9.3
Have You Analysed
Yesterday’s Trades?
9.4
Have You Any
Positions Open?
Response
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
115
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
TRADING PLAN
TEMPLATE SUMMARY
Item
Query
9.5
What are the
General Market
Conditions?
9.6
What Will You Do
Today – Hour by
Hour?
9.7
Which Instruments
are on Your Watch
List?
10.2
What is Your
Attitude Towards
Risk?
10.3
What is the Overall
Market Risk?
10.4
What is the Sector
Risk?
10.5
What is the Broker
and Hardware Risk?
10.6
What is the Strategy
Risk?
10.7
Response
What is the
Probability of a
Successful Trade?
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
116
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
TRADING PLAN
TEMPLATE SUMMARY
Item
Query
10.8
What is the RiskReward Ratio?
10.9
What is Your Risk
Per Trade?
10.10
Where Will You
Place Your Stop
Loss Orders?
10.11
When Will You Stop
Trading?
10.12
Large Draw downs
and Profits – What
Will You do?
10.13
Which Money
Management
Approaches Will You
Utilise?
10.14
How Will You Lock
In Profits?
10.15
How Will You
Determine Your
Position Size?
11.2
Response
Losing trades - Will
You Exit Before Your
Stop is Hit?
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
117
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
TRADING PLAN
TEMPLATE SUMMARY
Item
Query
11.3
Losing trades –
Which Signals Will
See You Exit Early?
11.4
Winning Trades –
Which Signals Will
See You Exit
Completely?
11.5
Winning Trades –
Which Signals Will
See You Close Half?
11.6
Winning Trades –
Which Signals Will
See You Close the
Remainder?
12.2
Which Strategies
Will You Trade?
12.3
What are Your
Setups?
12.4
How Will You Find
Your Setups?
12.5
Which Signals Will
Trigger Your Entry?
13.2
Have You Recorded
Today’s Trades?
Response
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
118
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
TRADING PLAN
TEMPLATE SUMMARY
Item
Query
13.3
Did You Execute
Your Trades
According to Your
Plan?
13.4
Have You Completed
Your Trading
Journal?
14.2
Back Test or
Forward Test?
14.3
What are Your
Promises to
Yourself?
14.4
What Questions do
You Ask After a
Winning Trade?
14.5
What Questions do
You Ask After a
Losing Trade?
14.6
What Steps do You
Take to Learn More
About Trading?
Response
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
119
BIBLIOGRAPHY
Atkinson, John & Berg Jim, Investing & Online Trading stock market newsletter,Sharetradingeducation.com 2008
Atkinson, John, The Atkinson-Guppy Articles Ebook,Sharetradingeducation.com 2004
Atkinson, John, 10 Secrets to Profitable Online Stock & Share Trading Ebook, 2005
Bedford, Louise, The Secret of Candlestick Charting, Australia, Wrightbooks, 1999
Bedford, Louise, Trading Secrets, Australia, Wrightbooks, 2001
Bedford Louise, Charting Secrets, Australia, Wrightbooks 2004
Berg, Jim, The Stock Trading Handbook- Fundamental & Technical Analysis Combined Ebook 2005
Berg Jim, JB Combo - Home Study ‘Trading Strategies with JB Premium Charts, ShareTradingEDucation.com, 2007
Berg Jim, Home Study Course, ‘Trading Strategies with Metastock’, Sharetradingeducation.com, 2005
Douglas, Mark, The Disciplined Trader, Pearson Professional Education,1990
Elder, Dr. Alexander, Trading for a Living, USA, John Wiley & Sons, 1993
Elder, Dr. Alexander, Come into my Trading Room, USA, John Wiley & Sons, 2002
Guppy, Daryl, Share Trading, Australia, John Wiley & Sons, 1996
Guppy, Daryl, Better Trading, Australia, John Wiley & Sons, 2001
Guppy, Daryl, Snapshot Trading, Australia, John Wiley & Sons, 2002
Guppy, Daryl, Trend Trading, Australia, John Wiley & Sons, 2004
Guppy, Daryl, Tutorials in Applied Technical Analysis , weekly share trading newsletter from
www.Guppytraders.com.
Hull, Allan, Active Investing, Australia, John Wiley & Sons, 2001
Hull, Alan, Charting in a Nutshell, Australia, John Wiley & Sons,2002
Hull, Allan, Active Retirement, Australia, John Wiley & Sons, 2005
Hull, Alan Blue Chip Investing, Australia, John Wiley & Sons, 2007
Hull, Alan Acting Investing & Active Trading weekly newsletters from Alan Hull
Lewis, Max Conditional Order Trading Strategies (COTS) Ebook Sharetradingeducation.com 2004
Tate, Chris, The Art of Trading, Australia, Wrightbooks, 1997
Tharp, Van K., Trade Your Way to Financial Freedom, USA, McGraw-Hill, 1999
Watkins, Frank, Exploding The Myths, Australia, Vocational Education & Training Publications, 2003
Steenbarger, Brett N. Ph.D.,The Psychology of Trading, John Wiley & Sons, 2003
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
120
GLOSSARY
Advance/Decline Line
All Ordinaries Accumulation Index
All Ordinaries Share Price Index (All Ords)
American-Style Option
Arbitrage
Ask
Asset Allocation
Asset Backing
These are just some of words defined in our A to Z Glossary of Terms of over 20 pages.
You are invited to download the Glossary Appendix from Jim Berg’s ‘Stock Trading Handbook Fundamental & Technical Analysis Combined’ with our compliments.
Log in at our Free Downloads section at www.sharetradingeducation.com: Click Here.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
121
JIM BERG’s & OTHER
TRADING TOOLS
• J B Premium Charts and complete JB Combo package
• Investing & Online Trading Newsletter
• JB Volatility Indicators
• Home Study Course
• John Atkinson’s Training Resources
• Charting Software
• Scanning Software
• Jim Berg Seminars and Boot Camp
• Ask Jim Berg at www.ShareScene.com
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
122
Jim Berg’s Complete JB Combo of
Home Study + Charting + Data + Support
If you’re looking for a complete all-in-one, low cost, best value combo package of
Stock charting program & data
Home Study Course and
Mentoring support for the Australian share market
then look no further. You have found the best.
In the comfort of your own home, learn Jim Berg’s profitable trading strategies that really work.
At a mere fraction of the price you’d have to pay anywhere else, here’s what you’ll receive:
¾
Jim Berg’s ‘Trading Strategies for JB Premium Charts’ Home Study Course
discover how you can successfully combine fundamental and technical analysis
¾
Simple-to-use JB Premium Charts stock charting program
¾
Jim Berg’s world famous JB Volatility Indicators
¾
Jim Berg’s watch lists – from fundamental scans, monopolies, ‘Expert Picks’ etc
¾
One month’s email support from Jim Berg
¾
1 year end-of-day JB Premium Stock Market Price ASX Data & history since 1990
For more on Jim Berg’s JB Combo Click Here
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
123
We hope you have enjoyed reading this ebook. The aim of this publication is to provide a
framework of questions and suggested answers to help investors understand themselves and how
they will act and react when investing and trading the stock market. The ultimate goal for
individuals is to get their emotions under control, improve their discipline and overall performance.
To easily find other resources, we have provided a series of hyperlinks within the document which
you can click on to discover further information on the web.
A craftsman uses precision tools to hone his skills. The following are some of the trading and
investing tools available at our site www.sharetradingeducation.com, some of which are available
to you with significant discounts as a reader of this ebook:
1) Investing and Online Trading Newsletter
In our newsletter, my business partner John Atkinson and I continue the theme and principles of
this Trading Plan ebook by featuring:
On-going step-by-step weekly education on the research & selection of stocks.
How to structure your portfolio for more stability, flexibility & lower risk
The selection & management of stocks with portfolio examples .
Additional progressive instruction by world class expert authors/speakers Daryl
Guppy, Alan Hull, Dr Brett Steenbarger, Dr Van Tharp & others.
To become a Member of our mentoring style Newsletter Click Here Now.
2) JB Volatility Indicators
Throughout this ebook I have explained the main long term investing and short term trading
strategies which I use. Most of the charts included the template of indicators which I apply on my
own charts, as part of my approach developed over more than twenty five years of trading:
JB Alert Signal
JB Volatility Entry Signal (red to blue bar)
JB Profit Taker
Volatility Trailing Stop Loss
These Indicators form part of my JB Premium Charts package, which in turn is part of my
complete JB Combo of Home Study+ charting + ASX data and history + email support.
For Metastock users, these Indicators are also available in my Metastock Volatility Charting
Template.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
124
3) Home Study Course
My Home Study Course builds on what you have learnt here.
All participants receive one month email support directly from me to help them solve their trading
problems.
My ‘Trading Strategies’ Home Study course component is available in a choice of 2 formats:
i)
For JB Premium Charts users: It is also part of my JB Combo package
ii)
For Metastock users: This format contains the Volatility Template above and is
available separately. There is no other Metastock trading course available like
this. Some sample pages are available in our Free Downloads Section at our site.
4) John Atkinson’s Training Materials
Chapter 4 also stressed the importance of using sound money and risk management principles.
John Atkinson has designed a series of two Money and Risk Management Portfolio Tools:
Atkinson Portfolio Planner ©- pre-trade planning of sector & stock selection
& portfolio risk
Atkinson Trade Optimizer ©- pre-trade analysis of which stock to buy from a
qualified group of companies that meet specific trading criteria
Please click on the following links for more details on John Atkinson’s:
o
Atkinson Portfolio Tools
o
Ebooks – ‘The Atkinson-Guppy Articles’ & our co-authored ‘ 10 Secrets to
Profitable Trading’,
o
Money & Risk Management course module, based on Daryl Guppy’s work
5) Charting Software
We use our JB Premium Charts package which includes:
My JB Volatility Indicators
My series of watch lists and
12 months data and history data
These are combined with my Home Study Course ‘Trading Strategies with JB Premium Charts’ in
my complete JB Combo package – the very best value educational resource available today.
Metastock users can add my JB Indicators using my Volatility Charting Template.
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
125
Daryl Guppy’s chart screenshots uses GuppyTradersEssentials full charting software.
Readers who have other programs and who may also wish to use Daryl Guppy’s price projection
tools, parabolic trend line, Guppy Multiple Moving Average (GMMA) etc may be interested in the
Guppy Toolbox which plugs into Metastock and many other software programs.
Pro Trader and BullCharts are also available at our site, with more detailed descriptions presented
there. Both these programs feature easy to use and powerful explorations.
6) Scanning Software
In Chapter 3 we featured two different types of scanning software:
Scanvest system testing – for a 16 day free trial Click Here
Market Scan for Fundamental Analysis – Click Here
7) Jim Berg Seminars and Boot Camp
I regularly conduct Jim Berg Seminars across
Australia and occasionally in other countries.
I also run a two day ‘Jim Berg Boot Camp’ –
an intensive trading workshop, where I teach
the trading strategies outlined in this ebook
and more.
The consistently positive feedback has been
overwhelming.
All new attendees receive a copy of my indepth Home Study Course and 12 months
email support as part of their registration.
Significant discounts are available for newsletter members, previous purchasers of my JB Combo
and Home Study Course and for partners.
For details of my next weekend Boot Camp, Click Here .
8) Ask Jim Berg at www.sharescene.com
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.
How to Write Your Own Stock & Futures Trading Plan
Copyright© 2008 Tim Wilcox, Jim Berg, John Atkinson & Sharetradingeducation.com
126
If you have any questions about the topics covered in this ebook or in our ‘Investing & Online
Trading’ stock market newsletter, drop me a line at [email protected]
For general questions about the market, then post them at the unique ‘Ask Jim Berg’ section at
the popular ShareScene.com forum. You will find this page by registering at www.sharescene.com
then going to ‘Ask Jim Berg’.
This Australian share market discussion forum combines modern technology with a rapidly growing
member base of savvy investors. Keep up to date with the latest finance, business and investment
related information and benefit from thousands of combined years of share trading experience.
Trade with Weight-of-Evidence
To your success,
Jim Berg
November 2008
Disclaimer: Direct investing in the stock market can result in financial loss. Historical results are no guarantee of future returns. No representation is being
made that any account will or is likely to achieve profits or losses similar to those shown. Stock tips or ‘buy’ or sell recommendations are not provided. This
educational information is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any
particular person's investment objectives, financial situation and particular needs. This information is of a general nature only so you should seek advice from
your broker or other investment advisors as appropriate before taking any action. The decision to trade and the method of trading is for the reader alone to
decide. Avestra Securities Pty Ltd (Avestra) AFSL 292464, and ShareTradingEducation.com (“STE”), as Corporate Authorized Representative of Avestra,
disclaims all liability of Avestra, STE and its Associates for any loss or damage suffered by any person by reason of the use by that person of, or their reliance
on any information contained herein, whether arising from the negligence of Avestra, STE or its Associates or otherwise. Refer also to the full disclaimer at the
back of each newsletter Edition and our Terms of Use.