BUILDING YOUR
TRADING PLAN
Module 1 - Success through planning
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What we will cover
Why we cover these topics so carefully
Yes, you need a trading plan
Forced discipline (well, almost)
My approach
Summary
Module 2 - Setting goals
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So, you think you want to be a trader?
What are your goals?
Thinking beyond and believing
Your starting point
Review your goals
Summary
Module 3 - Treat it as a business
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Failure can be avoided
How will you approach trading?
Building a business plan for trading
Establish your trading business plan
Knowledge building
Trading Knowledge
Trading Skills
Resources
Resources
Risk and disaster assessment
Summary
Module 4 - Measuring your progress
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Journaling your trades
How to document these statistics
Summary
Module 5 - Trading goals in-depth
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Trading goals and setting them
Daily, weekly, monthly and annual goals
Planning the day ahead (market prep)
Daily recording of your trades
Keeping a journal
Weekly review
Summary
Module 6 - Getting ready for the day ahead
Market prep
Daily schedule
Summary
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Module 7 - Money management
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Trading and risk
Determining your reward to risk ratio per trade
Initial stop loss
Targets and trailing stops
Trading funds
Summary
Module 8 - Finally, your trading strategy
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Indicators
Entries
Exits
Trailing stops
Taking profit
Targets
Multiple contracts
Position sizing
Example trading strategy
Summary
Module 9 - Now you’re ready
Module 1 - Success through planning
What will be covered?
In everything we do in life, we have a choice to either take it serious or not. Sure,
there are something’s that should not be taken so serious, but when it comes to building
a business out of trading, this does not apply. If you are going to succeed in trading, you
must take it very serious and do the work needed. In these next few modules, we will
guide you through the process of building your trading business from setting goals right
through building your trading plan. I must warn you ahead of time however, this will
not be easy, but the road less traveled if often filled with great things! If trading were
really that easy everybody would be doing it!! Throughout these modules you will be
challenged and pushed and tested, stay with it and keep going and by all means get with
us if you need any help.
Our purpose for you
Our goals for you in these next 10 modules is to inspire, motivate you so that you will
do the work necessary to succeed. We can give you all the tools that you need, but we
can’t force you to train! You NEED a comprehensive trading plan as well as a complete
understanding of the trading system that you will use. The more work that you put into
this training material the more you will understand your trading business and the
quicker you will be on your way. Remember, you will be responsible for completing the
program not us, we can only help if you are doing the work. What we will teach you is
not just how to trade, but how to trade as a business!
Why you need a trading plan
Every time I meet a trader I ask them regardless if they are successful or not "do you
have a trading plan", and I can tell you that 100% of them that I have polled through the
years that do not have a trading plan are in the losing camp! Now, I am not saying that
everyone with a trading plan succeeds, but your chances are much great than without.
There are several reasons for this one being work ethic and discipline. Think of it this
way, you are traveling from New York to Los Angeles with sever major city stops inbetween, would you just ho in your car and wing it? Of course not, your trip would be
planned and a road map and or GPS set. When you build out your trading plan, you are
building out structure and discipline and an action plan which will help to keep your
emotions in check. Without a trading plan in place you will find yourself doing things
that may seem rational at the time like adding to losing positions, take profits to quick,
letting losers run, but in fact these are all negative and losing behavior in trading and
can be controlled with a trading plan in place provided you use it.
Forced Discipline (well, almost)
In any endeavor that requires hard work to succeed they all begin with dreams and
aspiration followed by discipline and hard work to get there. In trading, you will need to
develop this discipline and take it to the next level. You will require discipline for
developing your knowledge and acquiring the skills necessary for trading, discipline will
be required to follow your plan once you have developed it, discipline will be required to
control your emotions when things do not go as expected (and this will happen a lot)
and discipline will be required in many other aspects of trading.
Having an individual approach
As you start learning our rules and building out your trading plan, you must think
about your personality and how you can adjust what you are learning to fit your
personality in trading. This may be a different market for example, or maybe a different
time of day. There are many things to consider as you start building out your trading
plan and fitting it to your personality. It amazes me that so many traders come into the
room just looking to piggyback somebody trading on a screen and then they wonder why
they lose! The system may make money, but do they understand it well enough to sit
through the draw downs and keep trading? How could you if you do not even
understand the system. It is my personal belief that so many trading rooms have
adjusted their systems to these high % winner systems where they take small winners
and big losses because it looks good in the room. But those systems are all flawed they
do not make money, they are there only to sell subscriptions. Trading can provide a
great lifestyle and financial success if you are well prepared and have defined goals that
fits your personality. When you have these things in place trading should be fun and
enjoyable you.
Summary
Spend the time necessary to develop your trading plan if you expect to succeed.
Our purpose is to motivate and inspire you as we as give you the tools necessary
to succeed.
• Without a trading plan in place your chances of failure are almost certain.
• Trade with discipline.
• Make your trading plan fit you and your personality
• Make trading enjoyable.
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Module 2 - Setting goals
So, you think you want to be a trader?
A trader you want to be? Well, Why? What are your reasons? You need to be very
honest with yourself here as this is where your individual trading plan starts taking
shape. There are many reasons that an individual might want to make a career out of
trading. If you answer "I just want more money", then trading may actually not be for
you. After all, there are lots of ways to make more money and many are a lot easier than
trading. How much effort would you really be willing to put into your trading career
with that answer? Probably not enough. However, if your reasons were something
like, love trading and would like to make it my career, they you would be more likely to
put the time in. A friend of mine once told me do what you enjoy and do not worry about
the money it will come! If you dislike your job, you will not put in the hours needed to
become proficient or grow. In fact, would bet that you would be heading out the door the
first chance that you get. Having a passion for trading will keep you energized and a
trading plan will keep you focused.
What are your goals?
This section should be about your goals that you would like to achieve with trading.
Your goals should be such that they fire you up when thinking about, this passion will
help fuel you when the days and training seem to long. These goals can be things like;
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to quit my day job
to buy a new house
to help fund my retirement
lifestyle freedom
Be your own boss
Be as honest as you can when setting your goals and set time frames as well for
achieving these goals. If your goals are too large, then break them down into smaller
more manageable goals that together will get you to the bigger goal.
Thinking beyond and believing
Think beyond and dream, its ok! Believe and visualize when you set your goals, know
you can do it and you just may surprise yourself. Write your goals down in a list and
place them in front of you where you can see them every day. You can keep a picture as
well so that every time you start getting frustrated you will remember what you are
working for! In fact, this reminds me of a movie I once saw called Cinderella Man where
Russell Crowe plays a washed up boxer during the great depression. His family is so
poor they can’t even keep the electricity on during the winter, nor can they pay for the
milk to be delivered for their children to drink. As Crowe starts making this miraculous
comeback, he is asked to give an interview and during that interview one of the
reporters asked him what he is doing this for and his answer was "for the milk"! He was
so passionate about providing for his family that he was willing to get killed in the ring
against another boxer that had a reputation for not only knocking men out, but
separating their brains and killing them with a very powerful strike! Now I am not
suggesting that we get into the ring against a killer, but every time you get in front of
your computer to train you need to have this kind of passion to succeed.
Your starting point
This is where we begin building your plan and it all starts with writing down your
goals. I have provided a trading plan template for you to use during this process, while
you are not obligated to use this document, it is already set up and may at least provide
you with a very good reference point. We will begin with defining where we are no so we
have a reference point. In the trading plan template answer the question "What is
your current situation, lifestyle, financial and personal". As you answer this
first question be as accurate as you can.
Next in the second question in your trading plan template "What am I happy
with and what do I want to change?" In this section you will list out the things that
you would like to change about your lifestyle with trading, be as honest and complete as
you can.
In section three in the trading plan template you will answer "What would you
like to accomplish out of trading?" as well as all goals that you would like to
achieve. Break your goals down into long term vs. short term, you should have short
term measurable goals as you start moving into your trading career.
In the next area you will explain "how trading will help you achieve these
goals" . Put some thought into this and take your time.
After you finish with the four areas above you are going to rate your goals to make sure
you are prepared to do the work required to meet these goals. For example, do you agree
that your goals are achievable and at what level? Are you willing to do the work involved
to achieve your goals?
Review your goals
It is important that you measure and review your goals on a regular basis. This will
allow you to adjust goals as necessary and keep you exited and driven to continue
working hard. In the section "Re-evaluating your goals”, write down your plans and
time lines for goal reevaluation and then add those to a calendar with a reminder so you
do not forget.
Summary
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Define your reasons for wanting to be a trader
Write down your goals
Think big
Think like a successful person, stay positive and excited
Set a starting point for reference
start filling out the trading plan template
Re-evaluate your goals regularly
Module 3 - Treat it as a business
Failure can be avoided
Approximately 85 to 90% of all those that attempt to trade lose, so why is that?
It is my opinion that most of these lack the necessary discipline to build and stick
to a solid trading plan. Most just pile money into a brokerage account and start
trading as if they were going to really make money! I know crazy right? Well, this
is how I started and most of you probably did as well. I was going to quit my job
and start trading full time, and to top it off, I made a huge amount of money on
one of my first trades, $17,000 to be exact in about 5 minutes. I was hooked. Well
with no trading plan and very little knowledge I was headed for disaster. Many of
you have similar stories to this and I have to commend you for still being here
willing to make this work, which says a lot about work ethic by itself. How you
think about trading can have a huge impact on your ability to trade profitably. If
you think you will probably lose then you will lose! Keep a positive outlook, this
will help keep your emotions in check.
How will you approach trading?
You need to listen to this next statement closely, it is perhaps the most
important statement in this entire series of modules. You must approach
your trading in a professional business-like manner at all
times. Inconsistent trading with a hit or miss approach will leave you with
inconsistent results at best and a depleted trading account. By creating a
trading/business plan you will increase your chances for success greatly. If you
need to gamble, go to Vegas at least you will have some fun for that hard earned
money you WILL lose.
Building a business plan for trading
As you start building out your plan, keep in mind all of the variables that you
will need to think about. What are your goals and objectives, what resources do
you have available to you, how much capital can you allocate to your business
(this is a separate expense than your trading account), and what are your
expected profits. What about when things go bad, and they will from time to time.
How will you handle a situation such as an internet outage, an unexpected news
event and so forth. You will need to build in a disaster recovery plan. Your
business plan needs to include your trading strategy in complete detail right
down to every entry and exit so there is no second guessing while you are trading.
Now that you understand your goals and desires, let’s get started on some of the
more mundane stuff! Following we will list out some steps for you to complete for
your business plan.
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Determine your trading resources and take inventory, list what you still
need to begin (this should include your personal knowledge and skills as
well).
What will be your personal approach to trading and how will you
implement it.
What will your startup costs be (Include all equipment, training and
account funding costs).
Build a complete strategy plan with every detail for trading in it.
Your goal here on is to build a comprehensive business and trading plan that is
designed around you, your personality, your lifestyle and your skills. Remember,
your trading business does not need to be a full time business just make sure your
objectives are clear as you go forward.
Establish your trading business plan
As we begin building out the business plan for our trading business we will
focus on four areas:
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Trading knowledge and skill work
Resources
Your trading business plan
Your trading strategy
We will begin with knowledge and skill work over several areas, not just trading
skills. You need to think about your trading software package, market knowledge,
brokers and record keeping skills. For resources will include everything that you
need to build your trading business such as computers, internet access, data feed
and so forth. The business plan will actually encompass the strategy plan and will
include all things surrounding your detailed trading strategy plan. The
trading strategy plan will be a very detailed trade execution plan.
Knowledge building
Every transaction in the market place requires a buyer and a seller, and as a
general rule they both believe that their market perception is correct. Every trade
you take will have someone taking the opposite side who believes they are right.
When you trade you will be taking trades against professional traders with big
bank accounts, fund managers, brokers and of course the average trader. Because
these traders may be trading different time frames then you, it is not as easy as
saying if you win they lose. This actually may not be the case here is an example;
Joe buys 100 contracts in oil and plans on hold for a swing trade for his client
that may last upwards of a week. You are the seller of 10 of those contracts as you
sell short to enter your position and your trade might last only 5 minutes. Joe has
an initial stop loss of 80 ticks and is expecting a profit of 200 ticks. You have
a target of 25 ticks and a stop of 12 ticks. As the market start to move in your
direction, Joe is not the least bit worries as his position is based on an analysis
that is for his time frame, your analysis on the other hand is based on a very short
time frame. Finally your target is hit and you pocket 25 ticks. Then over the next
week the market takes back off to the upside and Joe is able to also take his
clients profits out for a nice gain as well. So it is not as cut and dry and one wins
and one loses as you often hear.
As you start building out your knowledge, keep in mind that this is different from
skills. Knowledge encompasses and understanding of something and
skill encompasses the ability to apply this knowledge. in this next section of your
trading plan, think about the following question and supply your answer in depth
in your trading plan template "Would I let somebody with my experience
trade my money?". You need to be very honest when you are thinking about
this question. Most people would trade far too soon before they are ready, buy
would scrutinize a potential trader for them much closer! Make sure you
scrutinize your skill set as you would another trader that you might have trade
your money.
Trading Knowledge
As you start building out your trading knowledge, you will need to take
everything you read and hear with a grain of salt to start. There is so much
misinformation and so many "guru's" out there these days that it can
be difficult to know where to go and get good solid information. We will give you
all of the tools that you need, but if you are like most people you will want to
continue to learn and this is perfectly acceptable as long as you do not get
confused and jump all over the place. You need to start with one methodology
and master it before moving on to another or you may wind up with the 90%
jumping from place to place until you are out of money.
Next you will list your knowledge and skills as it pertains to trading, markets,
brokers and software, you will update this on a regular basis as you gain more
knowledge and skills. You will ten set goals to improvement in these areas. Fill
out all of your strengths in the section "Trading Knowledge Strengths" and
all of your weaknesses in the section "Trading knowledge Weaknesses"
Trading Skills
As you start acquiring the knowledge need for trading, you will then need a
way to implement and practice your new knowledge until you are proficient
enough to take it live. Many fields of study require using some type of simulation
to help transfer knowledge into skill. Trading should not be an exception to this if
you want to keep you hard earned money and have it ready when you are. Take
your time and treat sim trading as if it were real. Do not reset your sim account
each time you make a mistake, in fact you should set it to the amount that you
will risk when you start trading live and do not reset it until either A you blow it
out, to which you will be glad you were in sim, or B you double it in size with a
consistent trading methodology that you can duplicate in live trading. As you get
ready to make the transition from sim to live, start with a low number of
contracts so you can get adjusted to live trading and the differences from sim.
Fill out the trading plan template question "How will I obtain the necessary
trading skills to go live?" Be as complete as possible.
Resources
Start thinking about any resources that you will need and list them in the
trading plan template. The first one we will start with is time. How much time
can you set aside for your training and still keep a balance in your life? This will
impact how long your journey to a successful trading business will be. You will
need to become a proficient time manager to really put in the time needed to
study and build your trading career. How much time will you have for trading
(this is separate from training). How much time will you allocate for premarket
work? How about trade analysis after you are done? Will you review your trades
daily, weekly or both? Complete the section in your trading plan template "What
time resources do I need?"
Financial resources are another area for strong consideration when building
out your trading business plan. There are two aspects to consider, capital and
income. Capital is the amount of funds that you need to run your business and
should include equipment, upgrades, data feeds, any monthly subscriptions,
ongoing education and your trading account. Your capital will also help you
determine the market or markets that you can trade and will be discussed as we
get into our trading strategy in another module. Fill out the section "What
financial resources will I need?" in your trading plan template and be
as thorough as you possibly can.
How much income will I need from this business to pay bills, set up retirement
and have some play money? In this section you need to set up your income goals
for your trading plan. Is your trading just a supplement to another income you
have or will this replace any other income. Be as complete as possible when filling
out the section "What type of income do I need from my trading
business?”
Physical resources need to be listed as well, this would be any computer
equipment, internet connection, software, office space (preferably nice and quiet)
and any physical asset that you will need. Fill out the section "What physical
resources will I need?" in your trading plan template.
Risk and disaster assessment
When plan for problems such as internet outages and unexpected news events
and any other thing that can happen, you will need to develop a contingency plan
of action so you know what to do in as many scenarios as possible. You should
have your broker’s number handy along with any account numbers needed in
case of a problem. "List all possible problems that can arise when
trading and how you will handle them."
Summary
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Avoid failure by planning
Approach trading as a business
Build a business plan that you can live with
Set aside the necessary time to become proficient in both knowledge and
skill
list out what resources you will need, then take an inventory of what you
have and see where you are lacking
Plan for the unexpected
Module 4 - measuring your progress
Journaling your trades
In this section we will talk about journaling your trades so you can measure your
progress. We will be focusing on our Auto Analyzer tool which is a back-tester,
trade analyzer and trading journal all built into a tool that automates the
journaling of your trades. This tool is sold separate for 199.00 and can be
purchased on our website with an instant download available. Of course there
are many other trading journals that you can so look around and see what you
can find.
How to document these statistics
You will need to measure your progress by keeping a trading journal of your
trades and reviewing it regularly. Your journal should have the ability to look
at strategies, markets, day of week and time of day independently and should be
able to run a series of graphs on these items independently. What this will tell
you will gain from this knowledge can make the difference in how quickly you
advance in your trading career. For example, just knowing the time of day that
you trade best will allow you to eliminate the less than optimal times to trade,
same goes for specific strategies, days of the week and so forth. This alone can
take your trading to the next level and should not be overlooked. in your trading
plan template fill out the section "How will I measure progress?" make sure
you think about things like how often you will analyze, what changes you will
make when you see things that can benefit your trading and how you
will implement these changes. For example, you would never implement a change
to your trading plan with fully understanding the implications of that change or
without testing.
Next fill out the section "What will i do if I notice
my performance falling?" You need to understand why your performance
might be falling and this section should help you with that. Example, are you
following your rules exactly as you were or are you getting sloppy? Did the market
structure change enough that you need to make slight adjustments or even look
at a different market?
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Find a journaling system that you can use to help measure progress
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Document all of your trades and measure your performance on a regular
basis
Module 5 - Trading goals in-depth
In this module we will start setting targets and goals to achieve the goals that we
set in module 2. Your goals in chapter 2 are probably pretty big and now we need
to set baby steps to make sure we stay on track. Make sure your focused and clear
on what you are trying to achieve from chapter 2 as we start breaking this
information down into small steps. Setting time based goals that are specific and
goal/reward driven will help you stay focused and allow you to measure your
progress. As a day trader, we should review our goals on a weekly and monthly
level as these will be more relevant for our short trading time frame. Your goals
should include skills that you are trying to achieve in trading, how you will get to
your financial goals and how you will get to your lifestyle goals. Remember, that
in order to hit your financial goals you need a way to get there and this module
should help provide that.
In the section "My goals for the coming year are" in your trading plan
template, fill in your goals that will get you to your major financial and
lifestyle goals from chapter 2. Your goals should be specific and targeted to
define outcomes that help you measure your progress toward achieving them.
Next we will break this down to monthly goals, use the section "My goals
for the coming month are" in your trading plan template, fill in your goals
that will get you to your annual goals and be very specific. Make sure to set a
way to measure these goals.
In this next area you will break down your goals to weekly. By doing this it
will be easier to see your improvement on the monthly and annual goals and
measure your progress. Here is an example of how this process might look:
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Overall goal - to trade for a living and make 100,000 per year doing it
(main goal from module 2)
Annual goal - become proficient in the Black belt program to the point of
trading live
Monthly goal - take and pass all exams through green belt (this may only
be one goal in a series of a few to achieve the annual goal)
Weekly goal - Watch all of the white belt videos and take the exam
As you can see from the goals above they all come together from small and
lead up to the main goal of trading for a living.
Summary
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Break down your goals from module 2 into small achievable pieces
Set an annual goal for this year
set monthly goals as a map to achieve your annual goal
Set weekly goals as a map to achieve your monthly goals
Module 6 - Getting ready for the day ahead
In the last module you set up your goals for the year, month and week. In Module
6 we will break this down to a daily trading plan and schedule that will help you
stay productive. Planning for the day ahead is a great way to make sure you are
doing things that are productive and not spending worthless time at your
computer. By staying organized during your trading day you will find you can get
much more done in a lot less time. Here you will outline your market prep
procedure, when you will start and end your trading session, when you will
review and journal your trading day and when you will work on furthering your
skill set.
Market prep
Before you begin trading, you will need to do your market prep so you have a
better idea of what the day may hold. Your market prep should include:
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General market conditions
An analysis of your higher time frame, identify key areas and market
direction
Daily news events is there anything on the books today that will affect the
market I am trading
Weekly news events is there anything coming out this week that may make
affect my market prior to the news event
An analysis of the previous days price action, this will give you a better
understanding of how your market might start out today
Daily Schedule
In this next section "Daily schedule" Fill in your schedule for the day ahead. This
is a great reference to make sure you are on track and not wasting precious time.
Summary
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Break down your trading day into a manageable schedule that you can
follow
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Do your market prep first
Decide your hours of trading
Determine the time you will set aside for analysis and training
Fill out the schedule in your trading plan template