Following Your Plan

[Gabe2004 10]

The most common sentence in trading forums and books is "Follow your trading plan and the money will follow" or a variation of the above.

The problem is - How do you follow an unproven plan?

How do you trust a trading idea that some how one thinks that it has an edge or a statistical advantage?

The most obvious answer would be to SIM trade the plan for a while and if all is going well switch to a live account.

The problem with the above is that SIM and LIVE trading are totaly different as far as emotions go. So, when one finally switches to a live account, if a string of losses is encountered (which is possible) then one starts to doubt the edge.

 

I am strugling with the above for a long time now.

 

Any comments would be welcome.

 

Gabe

[Cory2679 11]

I doubt there exists a real solution to this problem...it's probably just a matter of managing the problem as best as possible.

 

Probably just a matter of SIM trading (carefully, as to not create an addiction/crutch), then live trading small size and gradually increasing size (or just growing the account via profits). It's obviously not smooth sailing toward success...it's a journey of 3 steps forward, 2 steps back, 3 steps forward, 2 steps back, etc.

 

[Tams 20]

if you have a "plan", but don't follow it,

do you still call it a plan?

can you still call it a plan?

Edited December 2, 2010 by Tams

[Gabe2004 10]

if you have a "plan", but don't follow it,

do you still call it a plan?

can you still call it a plan?

 

Some of the definition for the word PLAN in the Merriam-Webster dictionary

A. method for achieving an end

B. an often customary method of doing something

C. a detailed formulation of a program of action

 

Having a plan and following it are two different things.

 

You can plan to go to the movies but at the last minute you decide to go to a restaurant.

You can have a plan for a house with a French roof and then change it to a Barn roof.

 

The same with trading. One can write down a detailed course of action but change it during the trading day because of lack of trust of the plan.

 

Gabe

[Tams 20]

...

You can have a plan for a house with a French roof and then change it to a Barn roof.

...

Gabe

 

the moment you changed your "plan", you have a NEW plan.

[Tams 20]

.......... ..........

Edited December 2, 2010 by Tams

[SIUYA 11]

the moment you changed your "plan", you have a NEW plan.

 

A good plan should be a living document, and being flexible within the plan can be a part of it.

However I feel a good plan for trading should start with a basic philosophy of the market how it works and how you can profit from it, and if it starts to deviate too much from the philosophy you know you either have a poor plan or philosophy

[Tradewinds 12]

I'm not saying that I have a solution to the problem, but I can write about what I'm doing.

I've written hundreds of notes down, written strategies, and struggled with trying to apply rules to actually trading. It's not easy.

I've come up with a couple of conclusions. Rules are good and they are bad. I have experienced situations where my rules made me inflexible, and caused me to mindlessly ignore the reality of the present situation. So I realized that I need to have a balance. I need something that allows me to be flexible, and deal with the situation at hand; but I also need guidelines for recognizing high probability set ups.

So instead of rules like: When line X crosses line Y and indicator Z is greater than value V, then buy, I am putting together basic concepts that can generically be applied to all sorts of situations. Instead of the basis of my trading being rules based on hard values, like, indicator XYZ crossing zero, I'm looking at basic concepts. Those concepts are things like Higher highs, Lower Low's, Failure to make a Higher high, a higher high, but it was very weak, weakness, strength, success, failure, confirmation, lack of confirmation, divergence and convergence.

Those generic concepts can be applied to any combination of indicators, news, information, and price.

I have come up with rules to determine things like whether there was confirmation of a trend reversal, or not. So I'm applying concepts to the indicators. I used to look at indicators without analyzing them within the terms of those generic concepts. It's a different mentality to look at an indicator and say to yourself, "This is showing signs of weakness and failing to continue", rather than thinking, "This indicator just crossed the zero line, . . . that's a signal." I think those two situations are two totally different perspectives.

I have found that the more generic I get, the more flexibility is automatically programmed into my rules.

But a combination of things are happening for me. I have decided on the indicators that I trust and that I know give me good information. I have trimmed down my charts and indicators to just a handful of things that I can focus on. But that has taken me almost 2 years to get to this point. You must put the hours in.

So what's my point? Your question seemed to be about emotions and sticking to your rules. I believe that you can't stick to your rules and control your emotions unless you really know that your strategy works. I'm getting there slowly, but it's been a long road.

I have written many, many pages of notes and observations and rules, and thrown them all away. But it's a process that was necessary to get to where I am now. Currently I'm at the point where I feel like I'm getting some really solid rules that I can now start practicing over and over until I develop a discipline. That's a whole other level. I get easily bored, and distracted while trading. And I tend to stop analyzing the situation and just waiting for the price to move in my direction and stop thinking about what is going on. I think of it as practicing something like learning an instrument. Just do the same things over and over again until it's committed to memory.

[edabreu 10]

There are many ways to learn something. You could read a book, take a structured course, watch and imitate, trail and error, and others if you care to spend some time thinking about it.

When it comes to learning, repetition combined with application leading to a structured qualifier (test) often is the best way to actually know that you have learned the material.

 

With trading there is a tremendous mental aspect to your daily activity that cannot really be taught without the accumulation of active live experience performing the trading activity. This means after you have studied your strategy and the related technical considerations for taking your trade entry and exits, the additional thought processes that combine with this are your personality, desires, expectations, hope, fears and the entire spectrum of your emotional makeup. This will now increase your learning experience to push it from the theoretical and technical into the realm of a defined personal reality. It can be pretty scary at first. Most traders do not get past this level, and are unable to combine their measurable technical proficiency with their controlled emotional responses and are thus doomed to travel the eternal roller coaster or travel on the path in search of the holy answer. One big reason why they cannot get past this level is because the ending result of the learning combination produces negative results from their trading. This may be the result of a low probability strategy combined with too low of a risk reward strategy or entries that are ill timed, or a combination of all these. Add the additional emotional processes to this and you have a great recipe for disaster.

 

If we go backwards and examine each part separately, the strategies with defined trade entries and exits, and the trade and self management while trading we will probably see an incongruity. Having a clear trading plan that covers our entire spectrum of activity while trading can go a great way to help us pinpoint the problems.

 

The main question is what does it mean to learn and just how do you really learn to trade well enough to be able to confidently continue in the face of flying bullets on the battlefield? First and foremost remembering that trading is a probabilities game and that your personal input into the market is inconsequential to anyone except the unknown trader on the other side of your trade, helps put things into perspective.

 

So the first thing that comes to mind is that worrying about whether your strategy based trade entry will work this time is pointless and a futile waste of energy. If your strategy is based on soundly tested statistical result backwards and forwards, and your entries and exits have the proper risk reward with the probable expected outcome of your strategy then wondering if this trade will fall into the 70% win side or the 30% loss side is ridiculous. Yet I have seen many a trader go into each trade expecting it to fail.

Even more curious is I have seen traders go into a trade and due to not following their accepted (pre-defined) risk according to plan turn a winner into a loser because they wanted to limit the failure to less of a cost. Then they watch it come to within 2 ticks of their original stop and go on its merry very profitable way while they stand there holding their 8 tick loss when their stop was originally 10 ticks...but since this was sure to be the loser, they are left holding the empty bag. One big reason for this recurring behavior is that they lacked a sure reason that could tell them the trade had failed. With all the price gyrations and without a clear price based exit criteria, they may have stayed in the trade only as long as their nerves held out, rather than for some technical reason. There have been times when I have entered a trade and price performed a clear exit pattern, and I was able to confidently exit my trade with a 2 or 4 tick loss avoiding the full stop. There have been other times when the price action and pattern was muddled and unclear and so I stayed in the trade since no exit criteria was met and took the full stop out. When using my automated strategies, there was no consideration on the exit on my part. I had to rely on the expected outcome dictated by the automated strategy. All this is according to plan.

 

When we decide to learn to trade, we have a few choices as to how to actually go about doing that. None is better than the other and we will learn according to what we are able to understand and accept. For some people the trial and error method sits better with them. Maybe they have deep pockets or big egos, or strong independent streaks, or just cannot trust anyone or have all the time in the world.

For others a clearly defined educational course is required. To get from a to b x amount of things must be mastered. Measuring mastery is sometimes a tough thing. If you take this approach make sure you have some qualifier.

Others need a defined structured trading course combined with hands on guidance, a final qualifier and someone to hold them to task along the way.

Still others need all of the above and in a safe environment with milestones measured by statistical achievement, continual constructive input and analysis from a third party guide, some pushing and prodding, and someone who they can always bounce their learning experience off of in real time.

Unfortunately getting all you need to be able to actually learn to trade consistently first, then confidently, then finally successfully is really tough in this business. Most of us want to hear what we want, not what we need. Many of us think if we pay enough then that means it will work. Many think you can just buy it and so the best is the one that costs the most.

Many of us think that it should all be for free and all traders are obligated to help each other win. Think about that. If I am to win, then who will need to take the other side of my trade when I do?

 

I am reminded of my family. The family will always tell you what you need to hear about yourself, while everyone else will usually tell you what you want to hear or don't want to hear, not what you need to hear. Family can really be a pain in the butt, but you gotta love them because they will be the best mirror you will find.

 

Learning to trade means first deciding what you want to learn, then how you are best able to learn that. If you tell someone you want to learn how to make $1000 a day, then be prepared to start at $100 a day (or less!). One of the things I try to emphasize is to learn to do well what you can do now first. If you have a strategy in mind, then learn how to make that strategy work until you get to the point where it either does or does not work. Keep tweaking it until you are able to work it to consistency and profitability. This can take time and money. In the end it may never work for you.

 

If you are starting from total scratch, have no great ideas or any real confidence that you can develop a profitable strategy within a reasonable amount of time, then look for some predefined strategy that makes the most sense to you and that you can understand. But more importantly, keep in mind that most reasonably reliable strategies of 50% (or even less) with the proper risk-reward and trade management can work and does work for the person who designed it and knows how to properly trade it.

 

Good teachers will teach you their method and help you learn your own. The best teachers will first plant their voice in your head, and then show you how to turn that voice into your own. Good teachers are like mirrors. They were just like you. When I taught martial arts, everyone started as a white belt. Only a few made it to black, and even fewer to the higher levels of black belt.

Learning to trade for many comes down to learning how to trade like someone else until you can learn to trade like you. The first part is actually the hardest. Once you learn it, you are left with nothing to do but improve on it and become a better trader.

[Tradewinds 12]

One big reason for this recurring behavior is that they lacked a sure reason that could tell them the trade had failed.

 

Here are subject categories that I use. This provides an outline for structuring my trading plan. The goal is to have an answer for every subject category.

 

Trend Categories:

• PRE-MAJOR REVERSAL
  

• MAJOR REVERSAL
  

• RETRACEMENT
  

• REVERSAL CONFIRMATION
  

• REVERSAL FAILURE
  

• TREND CONTINUATION
  

 

POSSIBLE REACTIONS TO MARKET CONDITIONS:

 

• STOP AND REVERSE
  

• AVERAGE-IN
  

• SCALP
  

• LET IT RIDE
  

• TAKE LOSS
  

• TAKE PROFIT
  

• RE-ENTER IN CURRENT TREND DIRECTION
  

[MightyMouse 12]

The market chews up and spits out traders who stick to the rigidity of a plan. If you find it difficult to follow a trade plan and recognize why, then you are on the right path to succeeding at this.

[snowbird 10]

Here are subject categories that I use. This provides an outline for structuring my trading plan. The goal is to have an answer for every subject category.

 

Trend Categories:

• PRE-MAJOR REVERSAL
  

• MAJOR REVERSAL
  

• RETRACEMENT
  

• REVERSAL CONFIRMATION
  

• REVERSAL FAILURE
  

• TREND CONTINUATION
  

 

POSSIBLE REACTIONS TO MARKET CONDITIONS:

 

• STOP AND REVERSE
  

• AVERAGE-IN
  

• SCALP
  

• LET IT RIDE
  

• TAKE LOSS
  

• TAKE PROFIT
  

• RE-ENTER IN CURRENT TREND DIRECTION
  

 

sounds like you are primarily a trend trader instead of a scalper (emotions involved with beginners trying to do both can be disastrous unless their trading plan involves taking off a set amount at a predetermined level every time.)

 

Curious therefore, about the category "scalp"

 

What market conditions would tell you to scalp, instead of letting your trade run to it's predetermined plan of targets or stops.

 

I pose this question as I believe it goes to the heart of the thread.

 

snowbird

[Tams 20]

a plan is only good if you understand the challenges ahead of you.

 

take the example of climbing mount everest.

you have a plan to scale the summit.

you follow your plan.

things change.

you have 2 options,

1. stick to your plan, or

2. change your plan.

 

stick to your plan can mean death,

not sticking to your plan can also mean death.

 

you have to understand your plan,

and the challenge

and the context you are in at the moment.

 

sticking to a plan blindly will kill you

changing your plan recklessly will also kill you

[Gabe2004 10]

Rules are good and they are bad. I have experienced situations where my rules made me inflexible, and caused me to mindlessly ignore the reality of the present situation. So I realized that I need to have a balance. I need something that allows me to be flexible, and deal with the situation at hand; but I also need guidelines for recognizing high probability set ups.

 

This was a great explanation of the problem I have.

As an engineer I am used to follow precise rules because they are derived from formulas.

Following exact rules in trading led me to financial disaster.

The idea of a concept sounds good but this is like trying to merge art and science which is probably (as I start to realize) is the answer to success in trading.

 

Gabe

[Gabe2004 10]

a plan is only good if you understand the challenges ahead of you.

 

take the example of climbing mount everest.

you have a plan to scale the summit.

you follow your plan.

things change.

you have 2 options,

1. stick to your plan, or

2. change your plan.

 

stick to your plan can mean death,

not sticking to your plan can also mean death.

 

you have to understand your plan,

and the challenge

and the context you are in at the moment.

 

sticking to a plan blindly will kill you

changing your plan recklessly will also kill you

 

In life threatening situations which occur rapidly (as well as in trading) sometimes you have no time to plan an alternate plan. Instinct cicks in in those situation.

Maybe instinct is a plan, derived from an accelerated thinking/assessing process...

 

Gabe

[MightyMouse 12]

In life threatening situations which occur rapidly (as well as in trading) sometimes you have no time to plan an alternate plan. Instinct cicks in in those situation.

Maybe instinct is a plan, derived from an accelerated thinking/assessing process...

 

Gabe

 

The only possible instinct that man has is, possibly, the sucking action a baby makes when presented with a breast.

 

I am not sure if invoking that instinct will help if you are in a bad trading situation.

[SIUYA 11]

The only possible instinct that man has is, possibly, the sucking action a baby makes when presented with a breast.

 

I am not sure if invoking that instinct will help if you are in a bad trading situation.

 

maybe not but it sure can help ease the pain of a bad day.

[Tams 20]

maybe not but it sure can help ease the pain of a bad day.

 

.......... .......... Lol

[laurus12 10]

Regarding the ability to use a trading plan, I believe this is why experience where you observe markets over time and let them teach you is so important.

 

Personally I endorse a strict trading plan, but not the kind similar to the ones you get as a complete trading system over a couple of webinars added with a couple of pages. You know, the typical ones where it says when oscillator x goes reeeally far up where the sun never shines it means overbought and when it peeks out again you sell. Pardon my French, but this is exactly how I see those systems. As many of you know it is a bit more complicated than that. At least in the beginnings.

 

Personally it helped tremendously when I started to understand basic price action concepts as a basis for when a plan should be put into action or not. Strictly even if a basic over bough/over sold oscillator or even volumes seems to give a confirming signal I do not base my initial actions on them. Not until price has done what I want it to do.

 

Anyhows as a starter to the beginner, a basic set of well thought risk rules is off course a must. What we do is a business and as in any other kind of business I do not think anyone would be happy after losing a full weeks good hard earnings because of one stupid decision. For example if you had just finished building a house, would you set off some dynamite just to see or hope it could stand the blast? Put value in your time and efforts. If you keep on loosing money, stop and become conscious of what you are doing wrong. And do not start again until you know you have a chance.

 

Generally I would recommend a beginner to take a step back and not being so hasty. Try to get out of the "tunnel vision" and see the more obvious or which rules markets themselves are abiding.

 

Laurus

Edited December 6, 2010 by laurus12

[Tradewinds 12]

What market conditions would tell you to scalp, instead of letting your trade run to it's predetermined plan of targets or stops.

 

I pose this question as I believe it goes to the heart of the thread.

 

snowbird

 

If I get what I consider to be a high probability peak or bottom set up, I will always trust that FIRST signal ENOUGH, to enter, but won't trust it enough to stay in very long. So I will immediately scalp a profit right after the FIRST reversal entry. I should explain something about how I trade for this to make any sense. A lot of people wait for confirmation that a trend is already underway, then look for a little bit of a pull back or retracement to enter. I do that also, but I don't wait for my FIRST reversal entry to do that. My FIRST reversal attempt is before there is any confirmation that a trend has reversed. I will go long as price is still going down, and vice-versa. Some people might call that, "trying to catch a falling knife". I don't see it that way. But there is always the chance that I'm wrong. But the reward is great enough for me to make, the attempt. The market is a RISK/REWARD relationship. You take a bigger risk, you get a bigger reward. Of course, we would need to go into a long discussion about what risk really is in order to do that topic justice, but the topic here is why I, personally, would scalp a trade as opposed to letting it ride. Basically, I'm scalping the first reversal attempt before I have any confirmation that it's really a reversal. That's why I would scalp. If it really is a reversal, fine, then I'll just do what everybody else does, and RE-enter a SECOND time on the next price pull back. But the difference is, I've already made a few bucks and they haven't. And if the price really isn't going to reverse, that's fine also, I made a couple bucks off the bounce. So either way, I'm a few dollars ahead of the game.

But the real issue here is whether I have a good leading signal for a price reversal. I think I do. But if you don't have a good leading indicator, then it's just a gamble to try to go long as price is falling.

Oh, and I have no predetermined targets or stops. Please don't misunderstand, I have targets and stops, and they get set, but not until after the trade is underway and I've analyzed what the situation is. I'm not trying to sell my tactics or convince anyone to do what I do. I'm just explaining a little bit of my strategy.

[Tams 20]

Trading is like driving... you are approaching an intersection, what do you do?

you look.

you check to see if there is a traffic light,

if not, is there a stop sign.

if not, who has the right of way.

if you have the right of way, is it safe to proceed?

if it is not safe, what do you do?

if it is safe to proceed, what else can go wrong? is there another car around?

what if the light turns yellow? should you stop, or should you gun it?

what if you hear a siren, what do you do?

in another word, you should know What Must Come Next (WMCN) at all time, and have an answer for the situation.

[robertm 10]

mmmmm, ok there is a simple answer that I'm stealing from my long term mentors so I'm giving them a plug (which I consider simply a courtesy reference as any good book has) in return. Nothing is free after all, FYI I don't receive any kind of financial benefit from plugging them, only the self satisfaction that you may one day trade profitably. And they don't (directly) teach intraday which seems to be the "mainstay" of forums, but it's all just theory to apply anyway. They probably stole the idea somewhere else anyway :rofl:, it is how we all evolve.

 

tradinggame.com.au - their next course is booked out until 2012 anyway so it's not much of a plug, it's a limited enrollment with a long waiting list (a novel concept in the realm of trading education revenue raising mega "pack-em-in spit-em-out send-em-home sell-em-next-course" seminars).

 

"One" solution - put a number on how many trades you will make in between making any changes to your system. Trade the number. Review. Go again. Record EVERYTHING that happens in the market (news, trends on various timeframes, errors & reasons for them etc).

 

Caveat - The shorter your timeframe the larger this number will have to be. This could be painful drawdown wise (so bet VERY small).

 

Traders simply take too short a view on their trading horizon. I often see the "one-three month" rule for "being profitable in Sim". I don't care what your timeframe is you trade, trade it in various states of long term trend - up, down, sideways, through corrections. Three months isn't long in a trading career, it may be a single moment of trend.

[jayap469 10]

I have found that the more generic I get, the more flexibility is automatically programmed into my rules.

But a combination of things are happening for me. I have decided on the indicators that I trust and that I know give me good information. I have trimmed down my charts and indicators to just a handful of things that I can focus on. But that has taken me almost 2 years to get to this point. You must put the hours in.

[Tradewinds 12]

I've decided on a new plan. I will try to be as impulsive as possible, entering trades while reading email, and posting on Trader's Laboratory. I will intentionally try to enter bad trades. I will have a goal of loosing money. I will set stop losses at 3x profit target. I will practice revenge trading, and have absolutely no patience at all. I will have daily loss goals, but try to loose even more. I will only trade during news announcements, lunch time, and in the afternoon when the price is not trending.

I figure that if I try to adhere to this plan, I will fail, and probably make money. :rofl:

[TheNegotiator 13]

I've decided on a new plan. I will try to be as impulsive as possible, entering trades while reading email, and posting on Trader's Laboratory. I will intentionally try to enter bad trades. I will have a goal of loosing money. I will set stop losses at 3x profit target. I will practice revenge trading, and have absolutely no patience at all. I will have daily loss goals, but try to loose even more. I will only trade during news announcements, lunch time, and in the afternoon when the price is not trending.

I figure that if I try to adhere to this plan, I will fail, and probably make money. :rofl:

 

Lol!

 

I believe plans are imperative to trading well. But where does the ability to follow the plan come from? When I first started trading at a firm, this guy always used to say to me "follow your plan". I honestly don't believe he really understood why this was important and he was almost certainly just parroting it from somewhere else. However, it is crucial to be able to follow your plan.

 

So what is the key to it? Well, I'll steal an analogy Tams used earlier about driving and take it one step further. Planning your trading is like reading a map and planning a journey before you take a long road trip. What if you plan your journey and halfway through when you aren't sure if you're lost or not, you're informed that the map you planned the trip on was actually a piece of artwork done by a monkey? Or more likely, you rushed out after taking a quick look at your map? My point is, if the map isn't studied or worse still it's fundamentally flawed, how will you have the confidence to actually follow the plan in the future?

 

So it may seem obvious to many of you and shock horror, actually most of the important stuff which you will learn as a trader is, but actually having a good plan is more than likely imo to be the critical factor in whether you follow it or not. So research and study your data. Analyse and test your plan. PUT THE WORK IN. Then if you have any other issues after that, it's much easier to go back to your work and see that actually just following your plan really should make you money. Btw, I liked very much what edabreu said about the probability of the next trade:-

 

So the first thing that comes to mind is that worrying about whether your strategy based trade entry will work this time is pointless and a futile waste of energy. If your strategy is based on soundly tested statistical result backwards and forwards, and your entries and exits have the proper risk reward with the probable expected outcome of your strategy then wondering if this trade will fall into the 70% win side or the 30% loss side is ridiculous.