Table of Contents About the Book ......................................................... 3 The Story................................................................... 3 Where to Write the Plan ........................................... 5 The Structure ............................................................ 7 The Review ............................................................. 10 Summary ................................................................ 14 Sample Trading Plan #1 ........................................... 15 Sample Trading Plan #2 ........................................... 20 Sample Trading Plan #3 ........................................... 23 About the Author Guy Bower has more than 20 years of experience in the market as a money manager for a CTA, a private trader, a professional trader, trading coach, analyst and broker. He is the author of multiple books, eBooks, training material and courses relating to futures and options trading. Among other books, he is the author of Options: A Complete Guide published by John Wiley. © Guy Bower This eBook came from a course at TradingCourses.com. Come over for a visit to see what more we have. About the Book There are so many different versions of the ‘trading plan’ floating around and some really do over complicate the subject. There are even entire books written about it. Having a complicated and long trading plan is counter-productive. If it’s too big, it becomes too much of a pain to put into practice and you end up forgetting about it. In this short course, we break the plan down to some simple and logical questions and answers. We also have an approach for successfully implementing the plan. Read on! The Story Here’s an interesting thing. Back when I first started teaching prop traders, I spent a lot of time experimenting with different approaches. I’m not referring to specific trades as much as things like education, planning and preparation. The first 80 or traders we had through the program were required to do things such as: Write and present on specific topics Prepare a daily ‘cheat sheet’ ahead of the trading day Write a report on bad trades at the end of the day. Write and articulate a trading plan. I think all these things are important, I really do. It is part of our education and helps form the way we think about trades and trading. Keeping in mind some of these traders had not yet learnt the basics. They only just knew what a futures contract was and had never traded on a platform. For that reason, performing these tasks were essential. That said, was there any evidence that doing these things creates great traders? Not at all (unfortunately). Take trading plans for example. There was no pattern showing the guy that wrote a long trading plan did any better than the guy that wrote a one pager. I remember the guy that did the best in his first year of trading. He was the one that didn’t write a trading plan when first asked, then when he got around to it, it was…crap. Some traders are like that though. His strength was his cockiness. The quality that made him think writing a trading plan was beneath him was the same quality that helped him add size to a position when others wouldn’t. Perhaps ‘cockiness’ is something for another course. Why then are we doing a course on building a trading plan? I like plans as they create clarity. A plan will help you crystalize what is important and what isn’t. It helps with your education and, if reviewed once in a while, helps you stay on track. Not caring about a trading plan because you are cocky is not the path to good trading. It may have worked for one guy, but that one guy is an outlier. I recently read somewhere that it’s not the plan that is important, it’s the planning. In other words, just taking some action towards a plan is far better than doing nothing at all. That said, we are not about to create any old crappy plan. I’ve narrowed what I have seen in good and bad plans down to a bunch of questions. Answer these questions and you’ll have a plan. In the next lesson, we’ll look at where to write the plan. It may seem like an odd topic, but it is important to talk about process as well as content. After this, we get into the nuts and bolts of building. Then we’ll look at what to do with it. We also have some examples of good plans from guys that have gone on to trade well. Where to Write the Plan Like I said in the previous lesson, this sounds like an odd topic, but ‘where’ we keep the plan can influence how useful it is in the future. If it turns out to be useful, then it’s not odd at all. Don’t write this plan in MS Word and save it away in a folder somewhere. In six months you’ll have forgotten about it. I’m as guilty of doing this as anyone. I have a stack of Word docos saved on one of several PCs or in the Dropbox or that back up drive in the cupboard somewhere. Not only does that make it hard to find something I wrote a month ago, but it also makes it easy to forget what I may have started writing several months ago. Instead let’s write it in Evernote. You’ll need to download and install it on your PC. If you’ve completed the Organized Trader course at TradingCourses.com, you will know what Evernote is. If you have never heard of it, it is simply a central place to keep notes. A single note is saved as part of a notebook and you can have multiple notes within a single notebook. Within Evernote, you can have multiple notebooks. You may for example have the following Notebooks: FOR REVIEW LATER FOR READING LATER o Markets o Gardening o Cycling EDUCATION SITES OF INTEREST o Work o Personal BOOKS TO BUY MY BLOG o Hosting details o Articles to write o Admin things to do PERSONAL o Bike stuff o Trading stuff o Travel TRADING PLAN o My Core Questions o My Education Goals So all of those headings and sub-heading are ‘notebooks’ as Evernote define them. These are made up just for this example. Within each of those notebooks sit notes. Notes are separate docos like a Word file. In a way, this is how good Word could be if it could be organised. It can also help you organise emails, web sites/pages/articles, your trip to Niagara Falls and big Aunt Bertha’s birthday party. The good thing about Evernote is it works on IOS, Android, PC and Mac and it syncs across all. It’s free to use, although the paid version has a few more features. Start with the free one and see how you go. Three about 600 zillion vids on YouTube on how to use Evernote. Turns out it’s a pretty popular app. Just search the YouTube for a how to video or go straight to Evernote’s channel: https://www.youtube.com/channel/UCr_JcNR6slxFcTtDZ8t6F0A and https://evernote.com/ Once you’re set up and ready, let’s move one. The Structure Go to your Evernote and set up these Notebooks: TRADING PLAN My Core Questions My Education Goals And let’s get started. My Core Questions These 12 questions are the guts of what we are doing here. Cut and paste into your Evernote (or whatever it is you are using) then take 30 mins to answer them. My Core Questions 1. 2. 3. 4. 5. 6. Why am I writing a trading plan? Why do I want to be a trader? What are my trading goals? What sort of trader am I now? What sort of trader do I want to be? What is my trading Style? What do I trade and how do I select trades? 7. How do I manage risks both in terms of stops and allocations? 8. Wheat are my strengths? 9. In what areas can I improve? 10. What is my daily trading routine? (This question is for scalpers, day traders or swing traders. Adapt if you are a longer term trader.) 11. These are 5 things I believe about the market: 12. My top 5 Trading Rules are: Then we want to include your goals for education. Regular education is important. You don’t need to be reading for 4 hours per day, but an executed plan for ongoing learning is the difference between a long career and a change of careers. Education Goals 1. 2. 3. 4. What do I want to learn in the next year or so? How will I learn it? What do I want to learn in the next month or so? How will I learn it? Tips: If you have writer’s block, just ignore it and start banging away on the keyboard. Write anything. That’s the trick to getting rid of writer’s block. You can always change it later. Be brief. Don’t feel you need to write an essay. Keep it short and sweet. Don’t over think it. This plan will evolve in time. Examples At the end of this book are examples of trading plans. That is, they come from real full-time traders. They don’t exactly follow the guidelines in these lessons. However, they cover most of them – and they are short and to the point. There are some good things and bad things in each of the plans. Check them out and see my notes at the end of each plan. Questions 9 and 10 I want to elaborate on these ones because I think that will help with answering the questions. The trick is not to waffle on. 1-2 line answers for each point is fine. This is what I wrote for myself: These are 5 things I believe about the market: 1. Understanding market sentiment is important. 2. People get it wrong. That means the markets get out of whack with fundamental value. 3. Longer term trading requires massive patience. Don’t be quick to jump ship if things aren’t working. 4. The key to being patient is confidence. The key to confidence is having knowledge. 5. The path less travelled can produce better returns. Overcrowded markets have less opportunity. So does ‘crowd thinking’. My Top 5 Trading Rules are: 1. Be a contrarian. Always ask ‘why?’. Also, understand where other traders are positioned (Commitment of Traders data). 2. Follow the plan. Know (roughly) where you are getting in and where you are getting out. 3. Allocations are as important as the trade itself. 4. Work out more than one way to take advantage of a view. What spread? Futures or options? 5. I am able to communicate the reasons behind any trade in a few paragraphs at the most. You don’t need to limit it to 5, but you don’t need to write an essay either. Write them out, take a break then come back and look at it again. Edit, then you’re done. Answering these two questions will help you build the rest of the trading plan. You need to think about these things when defining your trading style, how you manage risks and where you want to be as a trader. The Review OK, there are two parts to this. Review #1 Firstly, for paid TC subscribers, once you write it, email me and I will review it for you. You don’t have to do this or even need to. It’s up to you. Remember, make it brief. I hate reading long stuff, particularly when I know all I’m going to stay at the end is “this need to be shorter”. Review #2 Secondly, and this is far more important, you need to review it yourself – regularly. Add a new Notebook to Evernote called ‘My Monthly Review’ section. With Evernote, set an alarm or do the same in Outlook or ToDoist or whatever you use for reminders. Your notebooks now look like this: TRADING PLAN o My Core Questions o My Education Goals o My Monthly Review Then as each month passes, create a new note for each monthly review. Overtime, you will have a string of notes that will be part of the review. After three months, it will look like this: TRADING PLAN o My Core Questions (1) o My Education Goals (1) o My Monthly Review (3) Make sense? Now, each review should include the following: Trading How well have I followed the plan? Where did I do poorly? Where did I do well? Is there anything in the market that I missed or didn’t understand? Education What have I done in the last month to improve my education? What did I miss doing? What do I want to do in the next month to improve? Are there reminders/notes I need to set for following months? Copy and paste these questions if you like or create similar ones more suited to you. Review Your Reviews Here, scan back over previous review to look for things you have missed, bad or good patterns or areas of missed knowledge that you have yet to follow up on. Don’t punish yourself if you stuff up or forget things, just put it on the ‘next’ agenda (see next lesson). That’s it. The idea behind keeping it simple is that it’s easy to remember and focus upon. If we had 158 questions, none of us are likely to remember much of it and put it into use. The Month Ahead Here is where you take what you’ve written out from the review or your plan and set and list of things to remain mindful of and things to do. Create a new note called My Month Ahead. Your notebooks now look like this: TRADING PLAN o My Core Questions (1) o My Education Goals (1) o My Monthly Review (3) o My Month Ahead Your month ahead is unique to what you want to do with your trading. It might look something like: EDUCATION Find some good info on yield curves Finish the DOM Boot Camp Course. Start two new courses. TRADING Remember my rules: Patience in a trade. Know thy stop and stick to it! Don’t double up on a bad trade. DAILY TRADING PREP: Read the news on BowerPost.com and CNN.com Take notes of important news and how it might affect the Tnote and S&P. Review charts. Then set an alarm for when you want to review this list. It might be daily or weekly. That’s up to you, but make sure it gets reviewed, and more often than once a month. Personally, I don’t do this in Evernote. I do it on a whiteboard in the office. Most days the whiteboard is wiped clean and I start over. That’s just how I prefer to do it. How you do it is up to you. Just make it effective. Summary There are four key points of this course: Just do it Nike have a point there. Creating a plan, no matter what is in it, is better than doing nothing. Simplicity What we have here is pretty simple. If you cannot write up a plan in less than an hour, there’s something wrong. Act This is where it writing a plan becomes powerful. You need to take what you have planned and put it to action. Review Equally as powerful is a regular review. Reviewing your plan keeps both the good things and the bad things fresh in your mind and, hopefully, keeps you on track. Now, go forth and plan! Sample Trading Plan #1 1. Objectives Short term: To earn on average, $500 per day in grains, with a limit of 4 lots. 2. Medium term: To increase lot size and expand markets in order to increase profit potential and ability to work greater hours and spread. 3. Long term: To increase repertoire of trading instruments to include bonds, European and Asian markets, and commodities. 1. 2. Money Management Maximum loss per trade: On any given trade I will not risk more than $125 per contract (must be potentially large trade to risk more than $125). 2. Maximum loss per day: Initially, $750 per day. This will be amended as lot size increases. 3. Worst case scenario: If approaching daily stop loss or have made numerous losing trades in a row, I will revert back to scalping using as small lot size as possible in order to regain some profits before making larger trades again. 4. Pyramiding and scaling out: I will use pyramiding techniques to buy more on pullbacks and sell contracts into strength in order to maximize profits and limit having my full allocation of capital exposed at all times. 1. 3. Methods/Strategies/Tools Methods Scalping and position/swing trading. I scalp in two scenarios; when unsure of general direction of momentum but I see enough momentum to take a tick or two, or when direction is clear but I have missed gaining a good entry for a longer trade but still see enough momentum to quickly get in and out before it turns. I swing or position trade where appropriate, using technical analysis of levels to determine profit targets. I also intertwine these strategies and scalp while holding positions to targets if I believe I can increase profitability by doing so, while still keeping exposure to any unexpected sudden movements in a profitable direction. The benefit of this is that I am not fully committed to an entire trade (in terms of lot size), but I can hold part of my capital to a target, and still make profits scalping even if my target is not reached. It also keeps me less exposed to sudden movements against me. Tools and Technology Using X_Trader to execute trades and eSignal for charting. When trading corn I use 3, 5 and 10 minute charts to pick up trends over different timeframes, as well as varying timeframe charts for related markets. Daily Routine Reading business news and CNBC overview of night market action before trading. Will arrive at office at least 45 minutes prior to market opening in order to check movements overnight, add levels to charts and any further news reading. I will have an idea of where I think the market will move during the day, but this view will never be concrete, and I realize that markets are always changing and I must be adaptable. Stubbornness in believing the market should move a certain way is not an option. At the end of each day I will assess profit and loss, review trades and complete my trading journal with the aim of constantly fine-tuning and improving my processes. Strengths/Weaknesses My strengths are being disciplined and persistent, in closing out losing trades quickly and letting profits run to their targets. I am focused and able to take advantage of quick scalping strategies as they occur. My primary weakness is becoming angry when a number of trades go against me. I plan to improve on this by constant monitoring and awareness of my thoughts and self-talk, and trying strategies to become less emotionally impacted in a losing streak. Time-of-day and Seasons Affecting Trading I am more careful trading open and close periods of market and predominantly scalp during these times. I limit my trading during quiet times, such as lunch, and make sure not to force trades due to boredom during these times. I also take into account holiday periods, both locally and overseas and their effects on markets and my trading decisions. Further Education I plan to continue reading relevant trading and psychology books, attend relevant seminars and complete my masters in applied finance. Also look at yoga and meditation to improve emotional discipline and reduce effect of stress. 4. Rules and Ideas At the open, be prepared for volatility. Refrain from overtrading – is it a high probability trade? Use price action predominantly – charts only for levels and general direction. You can be right at the wrong time. If so, get out and look for a better timed entry. If wrong, don’t cut and reverse – just get out and re-think the trade. If wrong, get out quickly – don’t hesitate. Only average down if fully convicted – be careful! Run profits to targets. Go with the trend – don’t stand in front of a train! Look for when an uptrend stops making higher highs and higher lows as a sign of reversal. Look for head and shoulders. Plan the trade – trade the plan. Once in a trade, don’t change the plan. Keep stops loss in place and run to target. Think about where stops are being placed? Is the market obviously being pushed towards them? 1st hour is reacting to night before, rest of day is looking at what will happen the following night. Don’t be too reactive. If the reason I entered the trade disappears – get out! Patience, focus, discipline. Don’t trade off hope! Be aware of people playing games and use them to your advantage. If not sure – don’t trade! Not trading is a viable option. Buy in rising market, sell in falling market. Don’t try and fade bounces or pick bottoms. Don’t trade depth figures – smoke and mirrors! Trade more off ladder in morning, then look for levels later on for longer swing trades. Momentum – get out as soon as it stops. Look to re-enter at better price if direction is still there. Squeezes – get out quickly! Don’t wait. -end- GB’s Notes: What I like about this plan: I love the ‘Rules/Ideas to trade by” section. However, the list might be too long for a trading plan. It could be easily forgotten. Have a look out our course on Morning Rituals. Perhaps this list could be used in the affirmations section What I don’t like: The main think I would add is we need a plan to learn more about spreading. Spreads trade heavily in grain markets, both intraday and long term. It’s something you would need to know. Aside from that, this is a good plan. I think it sums up things very well. The trick will be regular, perhaps monthly, review. It should be a calendar item. For example, you would set an alarm in your calendar on the first Monday of the month to spend an hour reviewing and updating. Sample Trading Plan #2 Why do I want to be a Trader? To have a career where I am the only person responsible for my performance and reward. To reach financial freedom and to have a flexible lifestyle. To be doing something that makes me happy. What Sort of Trader am I? Trend follower. Prefer to have a relative high win/loss ratio. i.e. 1:1 risk reward ratio. My Strengths Feel for the market. Ability to detect repeating patterns. Ability to systematically test an idea. ever give up attitude. Knowing that Trading is the only think I want to do for a living. My Weaknesses Impatience with entries, chasing the market. Not following the plan during a trade i.e. letting trades run to the pre-determined stop loss or profit target. Talking to other traders too much. Morning Trading Routine 6:00 – Gym, listen to a podcast of the overnight business news. 7:00 – Breakfast 7:40 – Read overnight news, check today’s data/news releases and overnight prices. Review charts. Get an idea of what the market can do today. 8:20 – Treasury put opens. Relax and sit up straight. Trade the plan. Trading Rules Using 1min chart, determine the immediate trend using 5s, 10s and 30s. Only trade in the direction of the trend determined using the above method. Look for entry on the retrace of the trend. Longs: Entry – On a retrace, when price breaks the high of the previous bar by 1 tick, enter at market up to 3 ticks higher than the high of the previous bar. Stop loss: Hit market on a break of the low of the previous bar. Profit target: 1 to 1 ratio with stop loss. Shorts: Opposite of Longs. Target/Expected Stats: Average loss = Average win = 15 ticks Average Win/Loss = greater than 3:2 Average Trades per day (4.5hrs) = 30 trades/round turns My Trading Goals This Week Reducing mistakes when trading on the sim and/or live account. Finish reading “Reminiscences of a Stock Operator”. This Month: Complete trading plan with conditions of entry and exits. Keep back testing up to date. This Year: Know my bread and butter trades. To become consistently profitable. -end- GB’s Notes: What I like about this plan: It’s simple. Good bullet points. Looks at strengths and weaknesses. Has a daily routine, albeit, just the morning. Who know, he might not be a morning person, so sticking to a routine at this time of day would help. What I don’t like: It feels a bit like it was written to be read by someone else (me). This trader was on a simulator and it shows. Writing out the rules for entries and exits is fine, but this area needs to be flexible and I would expect this trader would change these rules quickly once trading a live market. It does not have a plan regular review. There is a risk that this one will be saved and never looked at again. There is not much of a plan for learning or a goal for where the trader wants to get to. Anyone trading the US Treasuries should have a plan for learning spreads. Sample Trading Plan #3 Why do I Want to be a Trader? I want to be a trader because it is the most thrilling and fulfilling profession I have ever envisioned for myself. I am excited by the challenge of succeeding in a discipline that is notoriously difficult for most people and at the same time it offers an unlimited potential. My three primary objectives in wanting to be a trader are: 1. To have a fulfilling career that gives me a sense of purpose, pride and joy. 2. To generate an income that will enable me to live a life of financial freedom. 3. To be a part of a challenging and stimulating working environment What Sort of a Trader am I? I am a discretionary trader and my style is aggressive which makes me well suited for intraday scalping and highly active trading. I understand that I cannot predict the future and I accept that I cannot control the markets. However I am able to control my methodology, my trading patterns and my discipline, which will make me a successful trader. My Strengths My primary strength is my ability to learn and adapt to fast changing conditions. My secondary strength is my ability to objectively assess my own pattern of behaviour and my psyche, which helps me perform well under pressure. This contributes to ‘my edge’ and helps me towards my goal of being consistently profitable in the markets. My Weaknesses My primary weakness is not allowing my profits to run and to close trades in accordance with my exit strategy. My secondary weakness is wanting to recoup a loss quickly, which almost inevitably results in increased losses. The following aspects of my trading plan will help me control these weaknesses. Daily Trading Routine For E-Mini (Ny Time) 5:00am – Meditate for 20min, then visualize achieving goals. 5:30am – Fitness training and getting ready for the day. 8:00am – Get to my trading desk, read up on overnight news and market updates, prepare for any scheduled economic releases (expectations/actual), establish a view for the day and imagine different scenarios unfolding, check the current validity of levels and trend lines on your charts, read your trading plan. 8:40am – Clear your mind, prepare for trading and focus. 9:00am – NYSE opens. E-mini usually very choppy so only trade if you have a strong conviction. Watch for initial momentum and volume, monitor the Nikkei correlation and the currency moves. Midday(ish) – Market slows down, review trades from the morning session, scan markets for possible afternoon plays, changes, reversals etc. 3:30pm – Cash market getting ready for close, higher volume, possible big moves 4:00pm – Cash market closes 4:15pm – E-mini trading halt for 30 mins. Close all trades. 4:45pm – Trade re-open as you would open. Stay for early evening if needed. TRADING RULES 1. Plan your trades – Trade your plan. 2. Keep records of your trading in a trading journal. 3. Confidence – Always trade with confidence! 4. Patience – Be patient enough to wait for good trades and familiar set ups. 5. Discipline – Maintain discipline to be able to constantly improve and change bad habits. 6. Belief – You must believe in yourself and your judgment, if you expect to make a living at this game. 7. Let your profits run – Protect your profits with trailing stops, maximize profits not the number of trades. 8. Cut your losses short – Max $75/contract stop loss on E-mini. Never add to a losing position. 9. Losses are an inevitable part of the game so you better learn to love your losses. 10. Focus on BIG movements – don’t focus too much on noisy small fluctuations. 11. Anticipate price action instead of just reacting to what has already happened. 12. Pay close attention to price patterns, momentum, volume, chart formations and different market correlations. 13. Trade with the Trend. Do not stand in front of the train! Trend is your friend! 14. Trade with a plan-not with hope, greed, or fear. Plan where you will get in the market, how much you will risk on the trade, and where you will take your profits. 15. Make time to study the markets and continue gaining new knowledge. 16. Be a unique individual – professional traders isolate themselves from the opinions of others. 17. Success comes with dreams – Dream BIG! A man becomes what he thinks about all day long. Remember that whatever your mind can conceive, it can achieve! 18. Only you are responsible for your trading results, never blame the market or others. 19. Know your self – The key to successful trading is knowing yourself and your psyche. 20. Money can be made every day in the market, there are tons of opportunities. It’s your job to find them and trade your way to success! 21. You are your biggest mentor – Analyze your trades. Learn from your losses, they’re expensive lessons that you have paid for. Most traders don’t learn from their mistakes because they don’t like to think about them. 22. Focused Mind is the single most Powerful Tool you have – Your mindset is often the key obstacle that lies between you and success in the markets. Stay fit, healthy and mentally alert. Trade only when you’re rested, calm and in the right frame of mind. Never trade when you’re tired, upset or distracted by other events in your life. My Trading Goals My daily target for the first three months of live trading is to make a 40 tick profit and keep my daily round trips below 150 whilst trading one market. I will trade 1-2 contracts when scalping and increase my trading size to 3- 4 contracts only on big trend trades when I have the confidence and conviction. After the initial three months my goal is to have the profit results and sound methodology to be able to double my daily profit target to 80 ticks and my trading size to 8 contracts. In the next 6 – 12 months I intent to have enough knowledge, experience and confidence to start trading other markets and join the ‘big boys’ in realizing my true trading and earning potential. My long term goal is to become a very successful professional trader, to earn $1,000,000+ annual income, to live a happy, healthy and balanced life, and to always dream BIG! -end- GB’s Notes: 5:00am mediation! I love it. I’ve only recently started mediating but I can say I think there is a lot to it. That is, it has a lot of potential for improving your mindset – and that helps your trading not to mention your life. I love the long list of trading rules. However, as mentioned, these need regular review. Otherwise they will be forgotten. I think a weekly review where you take just a couple of these points and focus on them could be very effective. For example, take rule 17 (thinking big). Find a related book and read it. Don’t write a plan with empty statements. Take time to apply what you have written. One extra point here, that long list of trading rules can be used in the ‘Morning Rituals’ course on TradingCourses. Check it out. You’ll see what I mean. This eBook came from a course at TradingCourses.com. Come over for a visit to see what more we have.