Elements of a Trading Plan

[Ingot54 13]

It is quite apparent to me, and probably to you too, that a statistically significant number of traders have NEVER produced their own WRITTEN Trading Plan ... who knows the numbers.

 

But something has to be done to straighten out the situation that currently exists, that traders can simply throw five hundred bucks into an account, and begin trading, without having even a remote inkling that they are ill-prepared to be even participating in the financial markets.

 

It is possible to become so excited by the lure of "Trading for a Living" offered by the thousands of Internet Marketeers, that would-be traders lose their reason. All you have to do is download a trading platform, answer a few questions the right way: eg "Do you understand the Risks associated with the use of leveraged Instruments?" and you can fund a live account, often with a 10% bonus thrown in "to get you started."

 

This should be made a criminal offense, but this is a free world, and if the Dudes want so much to be separated from their money - there are thousands of "dealers" lined up to oblige.

 

Given that we can not regulate against stupidity, the next best thing to do is enlighten would-be traders about their folly. It is not possible to do all that in one article - and I am not sure I would want to anyway.

 

But on this forum there have been numerous requests for help, in one way or another, that are so far unrequited, and clearly one aspect CAN be addressed with little fuss.

 

I intend to discuss "Elements of a Trading Plan" as we go along.

 

At the end of this discussion, I hope we can together construct most of the elements needed (as mandatory) so that traders CAN write out a workable plan.

 

I do not intend to "give" you that plan.

 

WHY NOT?

 

Because unless you, the trader, are emotionally tied to your own WRITTEN plan, you might as well not have it. It will be pointless. You will see it as just a set of guidelines, and NOT as the rigid, set-in-stone 'Commandments' they truly need to be.

 

Look - think of your plan as a new girl-friend, for want of a better analogy. First you go through the flirting stage as you get to know each other. You become used to her nuances, the way she reacts to certain circumstances, and you begin to understand the things that make her anxious, and the things that she is comfortable with.

 

Over time you decide that you quite like her, and it becomes obvious that you are falling in love. What is happening is that you are becoming bonded to her emotionally, as you discover that you both share so much in common. Eventually you are convinced that you really can't function too well without her, so you decide to become engaged, planning to marry.

 

Nice little picture.

 

But that is EXACTLY what you are doing with your trading plan - you are nurturing it, and you become so happy with it, that you can not trade without it.

 

You don't wish to offend your girlfriend - so don't do it to your trading plan.

 

To avoid offending the rules, the best way is to have them written down. Yet out of 100 traders, you could probably find only a small number - perhaps five or maybe ten - (who really knows for sure?) - have any rules written down, and even then, such rules might only be rough guidelines.

 

In the next post, I will include links to all the threads on Traders Laboratory which have discussion about trading plans.

 

Please read them - even briefly - before we continue.

[Ingot54 13]

Human nature being what it is, we naturally form opinions, biases, prejudices and so on, and we like to generalize and stereotype just about everything. We like to C-O-N-T-R-O-L our environment, and so the tendancy exists to slot everything into its own little pigeon-hole. Then we relax - the business is done.

 

Nice.

 

But you can not pigeon-hole the markets like this.

 

For starters, you may think that you can REMEMBER all your rules, and just by looking at a chart, you "know" where the trade needs to be entered and closed. But ... somewhere the trade goes wrong, and when you check back over your WRITTEN plan, you discover that you went ahead and entered BEFORE price pulled back to support/resistance/Pivot Point and so on.

 

Why does this happen?

 

Because, as mentioned, we look at a chart, and form an unconscious bias about it, and simply overlook the one rule that disagrees with this unconscious bias.

 

You do NOT need a $7,000 course in trading, or the current #1 Best Seller book on Trading Psychology to "fix" your problem. All you need to do, is to write out your $#@%$ rules and be done with it.

 

Get committed to following a plan CONSISTENTLY and you can pretty much be done with the rest.

 

As mentioned, here is a list of "required reading" for you to come up to speed with the idea of having a written trading plan. The idea is to become familiar with whatever has gone before, and to become familiar with the reasons other traders have, for understanding the need to have WRITTEN trading rules, strategy, money management, entries and exits, and in fact 'everything in one box' so that there can be NO doubt as to your complete approach to your trading activities.

 

Not sure how far this will get - it will depend on YOUR input as much as mine. Feel free to bring ANY ideas you may have to the table, and we will put them all into the mix and sort out their place.

 

Read on ...

 

1. http://www.traderslaboratory.com/forums/f37/following-your-plan-8910.html

2. http://www.traderslaboratory.com/forums/f43/trading-plan-roadmap-trading-markets-449.html

3. http://www.traderslaboratory.com/forums/f30/define-your-trading-plan-7312.html

4. http://www.traderslaboratory.com/forums/f30/trading-plan-101-a-4988.html

5. http://www.traderslaboratory.com/forums/f30/trading-plan-development-help-input-please-4846.html

6. http://www.traderslaboratory.com/forums/f104/constructing-candlestick-trading-plan-2210.html

7. http://www.traderslaboratory.com/forums/f37/trading-plan-self-psychology-1943.html

 

There are others, but not really appropriate to what we want to discuss here.

 

So ... after reading through the links (however briefly) ... what are YOUR ideas about the elements of a Trading Plan?

[TheNegotiator 13]

Nice thread. Always useful for people to discuss things like this as to be successful long term, you must be professional.

 

What goes into a trading plan however must be well thought through. Don't just add things as 'filler' as otherwise you are 1- wasting your time and 2- turning yourself off from what should be a constructive exercise.

 

Many things can go into a plan, but I would ask how you are going to be accountable. Also, how do you then accept negative results as you know you have to be accountable? (this is really the same thing but illustrating that it is not only the results of each trade you must be accountable for but also the actions involved in bringing those outcomes).

 

TheNegotiator.

[Tradewinds 12]

I have spent time writing out different categories of a trading plan, and it helps to organize my thoughts. It also gives structure to how I process information when I'm trading. My trading plan includes various sub categories:

 

• Determine Current Condition
  

• Trend Types
  
  

• News Release Times
  
  

• Define/Analyze Trade Signals - Specific Market Analysis
  

• My Strategy - More generic than trade signals.
  

• Decision Making Process: Take signals, Use Strategy, Execute
  

• Trading Psychology/Concentration Tactics
  

• Things I Do Wrong
  
  

 

SUBJECT TO CHANGE: It may get changed tomorrow.:rofl:

Current Condition.docx

Edited February 14, 2011 by Tradewinds

[ramonbarros 10]

Hi Ingot54

 

For me, my plan ecnompasses two similar but distinct ideas:

 

1) A structure for the price action - what I call the Tubbs model - accumulation - breakup retest, trend (directional moves and corrections) - distribution - breakdown - retest etc.

 

When taking and manageing a trade, I like to assess the phase I am in. And....

 

2) The elements for my rules:

 

a) What is the trend of my time frame? Is it likely to continue or change? (The answers provide the strategy)

b) Where is my zone?

c) What is my trigger, initial stop, core profit target?

d) How does the trade's reward:risk compare to the statistical norm?

e) Once a trade is underway, how am I going to manage the trade?

[RACowgill 10]

I'm very interested in participating in and following this thread. I've been trading for a number of years and have about 200 pages of notes, however, I've never put them into a single document and identified them as my 'plan'. In the threads which 'Ingot54' provided, I've found a template that might be of help assisting me in doing this. I'm aged and don't know how many years I've left, but would really like to leave my grandkids something to think about.

Please include me if this thread is confinued. Thank you.

[TimRacette 11]

These are some of the things I have included in my trading plan and find that every top trader addresses them to some extent...

 

Max Loss per Trade

Max Daily Loss

Max Weekly Loss

After how many losers in a row will I stop trading for the day?

How many contracts or shares will I trade?

What is my exact entry setup?

When will I take a profit?

Will I move my stop up once the trade goes my way?

 

These are the top 10 rules I follow everyday...

1. Plan your trade and trade your plan.

2. Keep things simple.

3. Remain focused and disciplined.

4. Fully understand the markets in which you are trading.

5. Only place trades when you are in a calm state. Do not trade if you’re in a time crunch or frustrated.

6. Be selective with your trades!

7. Place stops at the time you enter a position. A stop can only be tightened, never widened.

8. Keep honest and meticulous records.

9. Don’t chase trades.

10. Read rules EVERYDAY!

 

Someone once said to me “Treat trading as a business not a hobby, hobbies cost money, successful businesses make money.” I trade by that quote and it has kept me consistently profitable month after month.

[chulaihuey 10]

I found it interesting in one of the recommended readings a poster included the definition of the word plan. Among the definitions one stood out for me:

• "method for achieving an end"
  

 

So for me that means an important aspect of the plan is to have an end, or in my mind a goal.

 

It is way too simplistic I think to have a goal that states make money, or be profitable in 6 months. I am personally inclined to be much more specific with amounts and time horizons.

I also think the goals have to be both reasonable and adjustable. If after 6 months I have only met half of my income, or wealth target, that does not mean I was wrong, only that I need to now adjust my assumptions and targets, and possibly my plan as well.

 

I think a goal or set of goals are a very real part of any plan.

[Tradewinds 12]

I also think the goals have to be both reasonable and adjustable.

 

In trading it is important to be in the state of mind to, "take what the market is willing to give you". So I would say, one of our goals should be to take what the market is willing to give. The other side of the coin, is to understand that we can't force the market to do anything. The market does what the market does, and as a small retail trader, I can not make the price move by shear willpower.

 

My point is, that setting goals can be a "double edged sword". As you stated, they must be reasonable and adjustable. I have made the mistake at times of not having a "plan B" if my goals are not met. And "Plan B" is to "take what the market gives me", and accept it if my goal isn't met.

[Ingot54 13]

...as to be successful long term, you must be professional ... but I would ask how you are going to be accountable.

 

Good point TN. I answered this in my own trading life by wising up. The market forces you to wise up, to focus, to discipline yourself into consistency, to stick to the rules you make for yourself, and to work from a plan - and by now I hope that would be a written plan. If you can't be accountable and responsible for the way you conduct your trading, and your results, I seriously don't think anyone else could hold you accountable, and I doubt a spouse would want to.

 

Also, how do you then accept negative results as you know you have to be accountable? (this is really the same thing but illustrating that it is not only the results of each trade you must be accountable for but also the actions involved in bringing those outcomes).TheNegotiator.

 

This could be the topic of a new thread.

 

The idea of keeping a journal of trades is good - but it is something I do not do personally. For starters I don't know the kinds of things to be specifically writing about. Perhaps "did I follow my plan" and "what was the outcome?"

 

It would be good if a thread could cover some of the "Journalism of Trading", and include the keeping of charts, what annotations to write on them, and what lessons were learned ... and what kinds of emotions flowed for the duration of the trade.

 

What kinds of information would we be looking for, and how would it be applied to future trades? Negative results upset me, for sure, and I recently wrote as much to a forum member via email. But because I have a plan, I pretty soon bounce back, and it is this that encourages me to plod on.

[Ingot54 13]

By now those interested in isolating the essential elements of a trading plan would have read the threads linked in post #2.

If you haven't, then skip to that post, and skim quickly through a few of those threads. to get the idea.

 

Some great responses so far, and it looks like we are beginning to get the bones of some ideas here, for the kinds of issues that need to be addressed.

 

Basically a Trading Plan covers what you do when trading.

 

I said "basically' ... meaning there is sometimes more to it than that ... or there should be. In fact there is probably merit in examining your whole operation, starting from things like Capitalization, Strategy, Money Management, Instrument traded, Time frame, Indicators, Charting package and platform, Broker and data feed, and so on. You could even include the idea of having a Business Plan to cover all aspects of your trading operation.

 

For now, in addition to the suggestions made already by others, I will just throw into the ring, a heap of things that I think need to be considered ... in no particular order:

 

Instrument to trade (Forex, Equities, Indices, eMinis. Metals, Commodities, Futures, Energy etc); Capitalization ($500 ... $2,000 ... $5,000 ... $10,000 ... $50,000 ... $100,000 and so on); Leverage; Contract size (micro ... mini ... Full Contract/Lots for Forex, and Position sizing according to Account Size for other instruments); Money Management (again - the 2% Rule is standard, but will vary according to skill level and currency pair traded, Volatility, Time Frame and Stop Loss level chosen etc); Strategy (Counter Trend, Scalping and Intra-day trading, Swing Trading, Position Trading etc); Set-up and Rules for Entry and Exit (here you just include what you regard as conditions for entry, placement of stops and take-profit orders, how you decide your exits etc). Once you choose your instrument to trade, will you specialize in one or two pairs or indices etc, or will you scan for setups amongst the many other charts available?

 

There is always bright interest in strategy, and it is because we, as traders often like to see how others do things, so that we might borrow an idea, or sharpen what we are already doing. But it has been said that even a poor strategy can win with sound money management; and even an excellent strategy will lose with poor money management. Enough siad - MM deserves a high place in our considerations of what to include in a trading plan. (Money Management is not rocket science - it simply involves some year 4 calculations based on what % of your a/c you will risk on a trade, and how large a trade you can place based on those figures.)

 

I have said before that traders need to understand their own trading profile - are you comfortable with holding large positions, or better with small ones more frequently? Many can't handle the draw down that goes with trading the higher time frames, despite position trading coming out better in the stress-of-trading assessments. Scalping requires a lot of screen time, and constant supervision of the trade. It also requires quite a lot of waiting, unless you are in possession of good screening tools and alert generators. Others like to look at the screens once a day for about 15 to 20 minutes, place a trade and turn off the computer. Do you know what kind of trading profile you have?

 

What about risk? Do you have chest pains when a trade goes against you? What size loss does it take to get you to sweat? One of the things traders need to master initially, is: "how to take a loss."

 

Will you base your trading on Fundamental Analysis? (some do quite successfully); Technical Analysis - Moving Averages on charts, and derived indicators based on price - momentum, trend, lagging and leading, oscillators, bands, channels, or proprietary indicators? A mixture of both? Will you trade purely from Price - using one of the forms of "Price Action" setups, or candlesticks, bars, line charts, Renko, Point and Figure charts, Heiken Ashi ... and so on ... all have their place ... and all have their disciples.

 

What sessions will you trade? Each day we have the Tokyo Session, which is usually fairly quiet. There is good activity in the YEN pairs, but the rest of the world is asleep during this session, and many traders prefer the higher-activity sessions - Euro/London, and the US session. There is a far greater amount of News released during these sessions, along with higher volatility and liquidity.

 

These are the things we had to consider at one time, before our trading reached the point it is at today.

 

Perhaps it would be good to revise the full list, and actually go over what you do, get in on paper, and see if there are any surprises there. It might surprise you to find that what you think you do, based on what you write down, is NOT actually what you do in reality.

 

Keep the ideas coming - and feel free to share your own Trading Plan. I will share mine in a day or two as well.

[Ingot54 13]

By the way, having a written trading plan need not be the complicated exercise that it might seem to be when looking at the above posts.

 

Those points are some of the wider things that would be considered by anyone who sits down to think about what they do.

 

It is possible to simply write down your plan as follows:

 

1) Trade only non-USD pairs during the London Session.

2) Enter when the 5EMA crosses the 8EMA, but only when the 8EMA is on the appropriate side of the 21EMA, all on the 30-minute time frame.

3) Exit when the 14.3.3 stochastic begins to cross the 20/80 line from below/above respectively.

4) Risk set at 2% of a/c balance, and stop loss position calculated as 30% of the Average True Range (ATR) calculated from Daily chart.

5) One trade per pair per day, and no more than 2 trades running at one time.

 

There are heaps of other things to think about, as we have seen, but because they will be already second nature, it is not really necessary to actually write them down.

 

What you do need to do, though, is actually look at all of the other issues, to consider their appropriateness to your own circumstances. You want to avoid being under-capitalized, for example, when attempting to trade full lots, when it might be wiser to be trading minis with your particular a/c size.

 

Those are things to be done once.

 

The rest of the trading plan needs to be written in the form of a check list.

 

The above example is not my own check list, but it does give an idea, even though I regard it as incomplete. Other traders might think it is enough, or too much.

 

But what a check list does, is it keeps you accountable. and gives you an assurance that you have followed some rules consistently.

 

If the strategy does not work - find out why and fix it, or use a strategy that does work.

 

An interesting point arises from the use of arbitrary Stop Loss methods. If your entry happens to be in the worst possible place, then having a stop based on "30%" of the Daily ATR is a guarantee of disaster. Arbitrary SL are ok when entries are placed "correctly" but could also be just a waste of money.

 

Stops are designed for two things - to serve as an exit point for failed setups, and to protect our a/c during a catastrophic event, such as major news. There is no need to actually wait for stops to be hit if you "know" the trade is not going to work - simply close the trade and move on to the next.

 

And finally, each pair will have its own particular requirements for safety stops. The AUDUSD might be good with a 20-pip SL on the 15M time frame, but you might need 40-pip SL for the GBPJPY on the same time frame (example only).

 

Didn't mean to get into specifics on this thread - had to throw that in there though! I like to use examples to show why it is useful to have things worked out, and written down.

[Ingot54 13]

By the way, having a written trading plan need not be the complicated exercise that it might seem to be when looking at the above posts.

 

Those points are some of the wider things that would be considered by anyone who sits down to think about what they do.

 

It is possible to simply write down your plan as follows:

 

1) Trade only non-USD pairs during the London Session.

2) Enter when the 5EMA crosses the 8EMA, but only when the 8EMA is on the appropriate side of the 21EMA, all on the 30-minute time frame.

3) Exit when the 14.3.3 stochastic begins to cross the 20/80 line from below/above respectively.

4) Risk set at 2% of a/c balance, and stop loss position calculated as 30% of the Average True Range (ATR) calculated from Daily chart.

5) One trade per pair per day, and no more than 2 trades running at one time.

 

There are heaps of other things to think about, as we have seen, but because they will be already second nature, it is not really necessary to actually write them down.

 

Those are things to be done once.

The rest of the trading plan needs to be written in the form of a check list.

 

The idea of having a written trading plan does not come into question - those who say they are trading successfully readily agree that having a written checklist definitely plays a pivotal part in their success. note that I have substituted the word "checklist" now, for the word "plan" because at this stage you have an unwritten plan, and now to crystallise that, you need a written component to check off when establishing your entry.

 

Here is a sample:

 

* Check trend in weekly / Daily / 4H / 1H (substitute your own) time frames and agree that the

significant trends support your directional bias [ ]

* Is there major news due that will conflict with or compromise this trade [ ]

* Check EMA on your entry TF to concur with higher trends [ ]

* Check Indicator (1) and (2) ... and so on to confirm trigger and entry [ ]

* Establish the point of placement of Stop Loss order - the point that will signal the trade has failed [ ]

* Establish Take Profit level in accordance with strategy (pivots; S&R etc) [ ]

* Examine Reward-to-Risk-Ratio ... it is within strategy expectations [ ]

* Calculate position size. Does it fit the Reward:Risk [ ]

* Is this trade in conflict with other positions (positive/negative correlation) [ ]

* Are you comfortable with every aspect of this trade [ ]

* Is there any reason NOT to take this trade (headache, emotional upset, fatigue, have an important appointment coming up, should be somewhere else, poor Reward:Risk, one of the key parameters of the strategy is NOT quite right etc) [ ]

 

The list is not exhaustive, and I invite critique - add/remove items.

The actual checklist will take less than 10 seconds once you are used to it, but it is the FINAL step before entry. The real "work" of establishing the setup also does not take long - flicking through a couple of TF and checking indicators doesn't take long.

 

And calculation of SL and TP levels, and Position Size, and thus Reward: Risk also can be done rapidly, especially if you use software to assist with these calculations. There are heaps of position sizing calculators available on the net - if you want one just ask, and I will attach one for you.

 

Keep in mind your check list will be unique to yourself. And because it is 'yours' you are free to have whatever you want on it. My idea is to add new items to the list to check every time I find something in a failed trade - was there something else I *should* have checked? Then it goes on the check-list.

 

BTW - For a more detailed approach, you might consider Googling "Anna Coulling" and look for links to Trading Plans. She seems to have several sites - all seem ok.

 

Finally I borrow a "Trader's Prayer" from her:

 

May my assessment of today's price action be based upon the facts, all of the facts and nothing but the facts.

May I not be influenced by fear, greed or the ill advised comments of others, which may be made in their interests and not in my own.

May I take into account the past history laid before me on this chart and make my assessment based on my knowledge and logic, and not on my emotions

 

To which I hope we can all say: Amen!

[TheNegotiator 13]

Ingot, I think trading plans and preparation are so important. I don't want anyone to take the thread topic away from what it currently is as we have some great threads now on these topics. However, I think it illustrates my point.

 

I attended a webinar held by an eminent name in trading last week. He told a brief story about a psychologist buddy of his. The guy said to him that all these traders were coming to him paying for sessions. The psychologist then asked this guy how long he should wait before he should tell the traders that the reason they are not doing well is because they don't want to do the prep work!

[Ingot54 13]

Ingot, I think trading plans and preparation are so important. I don't want anyone to take the thread topic away from what it currently is as we have some great threads now on these topics. However, I think it illustrates my point.

 

I attended a webinar held by an eminent name in trading last week. He told a brief story about a psychologist buddy of his. The guy said to him that all these traders were coming to him paying for sessions. The psychologist then asked this guy how long he should wait before he should tell the traders that the reason they are not doing well is because they don't want to do the prep work!

 

So sad, The Negotiator. I would not want to even consider that this is the across-the-board attitude of these folks. But it does confirm what I mentioned on the other thread, that components of the Psyche sessions do include sound trading principles too, and it is more likely THOSE principles that are making the difference, than the therapy/counseling sessions.

 

But whether the procedure of sound preparation is taught by a Psychologist or whether by a house-hold name trusted trader, as long as the principles remain intact, then the student trader should advance.

 

Like you, I have always done as full an analysis as I could before hitting the buy/sell button. Most of my past failures have NOT been that I didn't make profits - it was that I didn't take the profits when they were available.

 

My preparation these days includes target levels, and I set them faithfully. This means leaving pips on the table sometimes, but I read in one of Rob Booker's short eBooks once, that we should always leave something on the table for the next guy. That is a generous principle too, and one that ensures we always get out of the trade in good time, with at least some profits intact.

 

Most traders who pay for services are likely to conform to the directions of their tutor. As long as they are led to apply sound basic trading principles, it does not matter too much what other "filling and fluff" the courses are padded out with. They will still receive the help they seek, and the Psychologist will get another testimonial from a satisfied, and "rewired" client.

 

I know there are areas of overlap, and that there are ethical operators, but the trading industry success figures are fairly static. Someone is making a motza (a killing) out of the sheer ignorance of eager traders - about 90% of traders it seems.

 

Lambs!

[TheNegotiator 13]

Personally, I don't like the idea of trading rooms too much. If I trade, I want to see it and know why. I am not a puppet of someone else.

 

The way I see the leaving money on the table is like this(and I know we're straying a little off topic here):-

 

You take a trade based on a certain principle and strategy, you then have targets which are hit or not. If you leave money on the table so to speak it's only if it were missed WITHIN your trading plan. Outside of that you could try using small runners, but honestly imo if you run small % you'll only ever likely increase the profit by a smallish % compared to any massive move which might ensue. It can be good for your gambling side though

 

If say you can trade a certain way in for example an e-mini contract and take 2/3 points 3 or more times a day, but you can never run a 20-30 point winner 1- how many days does it really take to get to a 20-30 point total with your strategy if you're consistent 2- how often do those big moves happen 3- in trying for those big moves, are you taking hits in the meantime anyway???

 

Just a few thoughts which I guess we can call mental preparation. (which actually probably should be a thread in itself).

[Ingot54 13]

Personally, I don't like the idea of trading rooms too much. If I trade, I want to see it and know why. I am not a puppet of someone else.

 

The way I see the leaving money on the table is like this(and I know we're straying a little off topic here):-

 

You take a trade based on a certain principle and strategy, you then have targets which are hit or not. If you leave money on the table so to speak it's only if it were missed WITHIN your trading plan. Outside of that you could try using small runners, but honestly imo if you run small % you'll only ever likely increase the profit by a smallish % compared to any massive move which might ensue. It can be good for your gambling side though

 

If say you can trade a certain way in for example an e-mini contract and take 2/3 points 3 or more times a day, but you can never run a 20-30 point winner 1- how many days does it really take to get to a 20-30 point total with your strategy if you're consistent 2- how often do those big moves happen 3- in trying for those big moves, are you taking hits in the meantime anyway???

 

Just a few thoughts which I guess we can call mental preparation. (which actually probably should be a thread in itself).

 

I have a mate who likes to take profit on half, and let a runner go. But personally I feel uncomfortable with it. My belief system is that my preparation was for the 'most' I thought was available, and I am very pleased if I get it.

 

Closing out say 2 out of a 3-contract position, means you are risking a dip/pullback on your remaining 1/3 of your initial profits too, or running 1/3 higher. The Damocles sword.

 

I prefer to be "clean-and-away" with my capital safely in the bank, and the next trade coming into my sights. While I am running a position on a trade that I initially planned to be already completed, I have an opportunity cost in the trades I *should* be in, but aren't because I am preoccupied by a lesser trade.

 

Those additional pips available via a runner can turn out to be expensive.

 

In other words, my thoughts are that if letting a runner go is a part of the plan, then by all means operate the plan like that. But (and you didn't suggest this) if a decision is made ad hoc to let a small position run after the TP was hit, then the plan has been violated. If running a small position is part of the strategy, then the conditions under which to do so should be written into the plan.

 

I'm all for flexibility, but even then the strategy should be:

If-this-then that

If-not-then-continue

 

The consistency to execute the plan, as well as the commitment to continue operating it after a couple of losses, is the best form of discipline I know.

[Tradewinds 12]

If-this-then that

If-not-then-continue

 

Here are some thoughts about possible scenarios:

 

• IF <huge price move> AND <price move up> AND <previous trend down> ENTER LONG ON CLOSE DOWN
  

• IF <huge price move> AND <price move up> AND <current trend up> EXIT LONG
  

• IF <just entered short> AND <price move up> AND <new higher high> TAKE LOSS ON SHORT AND REVERSE BACK LONG
  

• IF <volatile> AND <huge price spikes> AND <just caught a better than usual profit> EXIT AND WAIT FOR NEXT ENTRY SET UP
  

• IF <news was very bad> AND <market is going up> BE CAUTIOUS AND LOOK FOR A DOWN TURN.
  

• IF <news was very bad> AND <market going down> AND <just got a long set up signal> GO LONG BUT LOOK FOR CONFIRMATION OF STRENGTH UP
  

• IF <just entered long> AND <price move up weak> AND <no strength signal up> AND <news was bad> AND <trend down and price dropped hard> EXIT LONG, WAIT TO SEE WHAT MARKET IS DOING
  

 

I have developed a lot of rules that I either have written down, or I've seen the conditions so often, that there is a 'database' of rules in my head that I can draw from. Now I'm at the stage of trying to get all those rules to be right at the front of my consciousness, and quickly available for decision making. Plus I want to develop a discipline of cycling through all my indicators, and not getting hypnotized by my profit and loss column.

[Tradewinds 12]

Most of my past failures have NOT been that I didn't make profits - it was that I didn't take the profits when they were available.

 

As the song says, "Know when to 'hold 'em, know when to 'fold 'em', know when to walk away, know when to run."

 

Kenny Rogers The Gambler Lyrics

[TimRacette 11]

I posted some details about my trading plan and the documents that I use to record various things like my trades, p/l, market data, and such on the TL site here, you may find it useful http://www.traderslaboratory.com/forums/blog.php?b=1347

[TheNegotiator 13]

Ingot,

 

Some food for thought. I agree with you in that holding runners isn't for everyone. I don't tend to do it. I only do it when I know I should take profit based on my plan but also I know there is a good chance of the market breaking but also breaking hard in my favour. I also think that any runners should be part of a trading plan. and can almost be considered as trades in their own right.

 

Here is a 'crude' example (excuse the pun)...

 

If you look at the image you will see a recent chart with some static levels and what I like to call 'ghost' trends - trend lines which the market has not confirmed yet but is likely to do so if it is still within that trend. Btw I don't trade oil but the reason for using it in this example is that I would say a runner strategy in a more volatile contract such as oil is more likely to be successful.

 

So the market pushed up about $1.5 and put in a pullback low. It clearly held above the $93 figure for technical reasons, attempted higher and then balanced. You may have felt a retest of this pullback low was a good buying opportunity and bought around say $93. Knowing crude and what was going on at the time you planned for at least $1 gain, so 100 ticks - $1000 per contract I believe. Pretty sweet (again excuse the pun). After testing the high but failing to retrace to any significant degree, it then took off towards the target. You easily got filled. The market however pushed higher. On the retrace, it failed to develop below the $94 figure. Pushed higher again, then failed to take the pullback and the proximity of the ghost trendline. Market then took off.

 

So in this case, my contention is that it would be worth planning for a runner considering the small potential 'give-back' on a small % of the position.

 

What do you reckon?

[Ingot54 13]

Ingot,

 

Some food for thought. I agree with you in that holding runners isn't for everyone. I don't tend to do it. I only do it when I know I should take profit based on my plan but also I know there is a good chance of the market breaking but also breaking hard in my favour. I also think that any runners should be part of a trading plan. and can almost be considered as trades in their own right.

 

Here is a 'crude' example (excuse the pun)...

 

If you look at the image you will see a recent chart with some static levels and what I like to call 'ghost' trends - trend lines which the market has not confirmed yet but is likely to do so if it is still within that trend. Btw I don't trade oil but the reason for using it in this example is that I would say a runner strategy in a more volatile contract such as oil is more likely to be successful.

 

So the market pushed up about $1.5 and put in a pullback low. It clearly held above the $93 figure for technical reasons, attempted higher and then balanced. You may have felt a retest of this pullback low was a good buying opportunity and bought around say $93. Knowing crude and what was going on at the time you planned for at least $1 gain, so 100 ticks - $1000 per contract I believe. Pretty sweet (again excuse the pun). After testing the high but failing to retrace to any significant degree, it then took off towards the target. You easily got filled. The market however pushed higher. On the retrace, it failed to develop below the $94 figure. Pushed higher again, then failed to take the pullback and the proximity of the ghost trendline. Market then took off.

 

So in this case, my contention is that it would be worth planning for a runner considering the small potential 'give-back' on a small % of the position.

 

What do you reckon?

 

There definitely is merit in using a runner in volatile markets, as you described, TN. particularly when

there may not come another opportunity for a technical entry until another pull-back presents itself.

And particularly when, in the case of oil the price has not seen these levels for 18 months to 2 years.

The technical S&R levels *should* still hold as per the last time price got this high, but not necessarily,

as we know.

 

The metals (Copper and Silver ... +/- Gold) are experiencing more volatile daily ATR's these days too,

and would also be classed as volatile enough to consider letting a runner go.

The FA supports rising prices for oil, and technically we are taking advantage of it. If I was in a trade I would

consider holding all of my original position until I was certain the trend had exhausted, or was in danger of

pulling back.

 

Sometimes it is good to plan for the likelihood of a runner situation - but because I don't think that way, any

off-the-cuff decision to let one go would likely end badly for me, because I would not have a station in mind to

jump off the train.

 

It is a good strategy - I have been in a trading room where I saw the trader use it to perfection - he was

able to select the point ahead (DPP or S&R) where price was likely to stall, and he was usually correct.

He was a good trader, and I wanted to emulate that. However, I was not ready for it, and the platform was

a bit complicated for me at the time (Fibonacci Trader). You make a good case for the use of a runner

though - if only it were that easy all the time

 

In my case I am usually happy enough to hit my target, and cast around for the next trade! This is

because I am usually a bit exhausted by the time my trade hits TP, and am happy to wash my hands of it!

That is a bit illogical, considering the spread is already paid, and the runner is in the trader for free.

[TheNegotiator 13]

It's definitely not something for everyone all the time in all markets. It is compelling though. The question when you get towards your target though has to be "Has anything changed in the market fundamentally since I entered my position?". Maybe a better way to look at it would be to analyse the possibility of a runner before you place the initial trade. So if you think the market may want to go 100 ticks, but your plan will only keep you in for 50, then run a small position with a defined tolerance level.

 

One thing that really jumps out at me though in your last post and I hope you don't mind me commenting on it, is that you are exhausted by the time a target is reached. I suspect this a big problem for many people. It can turn your plan from a well thought out and profitable plan into a heap of garbage. I only say this because I have definitely been there. Please correct me though if I'm wrong. Do you watch a DOM or anything out of interest? If not, have you considered an alternative chart type such as renko or heikin ashi?

Edited March 6, 2011 by TheNegotiator

[TheNegotiator 13]

The reason I ask about this is because imo planning HOW to stick to your plan is almost as important as WHAT is in it.

[Ingot54 13]

One thing that really jumps out at me though in your last post and I hope you don't mind me commenting on it, is that you are exhausted by the time a target is reached. I suspect it is a big problem.

 

I suspect this turns your plans from well thought out and probably profitable plans to a heap of garbage. I only say this because I have definitely been there. Please correct me though if I'm wrong. Do you watch a DOM or anything out of interest? If not, have you considered an alternative chart type such as renko or heikin ashi?

 

My problem is that I am in the very early stages of profitable trading now, after having lost a large account, and two smaller ones over the past 7 years. For the past 18 months I have made a few live trades, but have concentrated on technical stuff more than actual trading. My confidence is fragile, though inwardly I "know" I have passed the profitability barrier in the right direction.

 

I prefer to trade the 4H charts as my guiding TF, but I enter down around the 15M or even 1H at times. I am using Daily Pivot Points and a couple of other things as S&R levels on which to base my TP. Problem is that the more you watch a chart during a trade, the easier it is to talk yourself out of the trade and close it prematurely.

 

Now I have learned that most of the time my TA is ok, and my trades, if left alone, do go on to reach their target. So because of old habits, I have a tendency to want to close them earlier than I should. I set the trades up on MT4 and trade them live on another broker's platform, where I have more control over limit orders and slippage.

 

You may or may not be aware, but since the "cash back" revolution started, brokers have been refunding traders $1 per trade, or some ridiculous thing, based on the size of the position. What these traders may not realise, is that SOMEONE has to pay for this, and it is THEM via slippage, requotes or widened spread. Suckers! I won't trade using the MT4 platform for this reason.

 

And as it is I have to set contingent orders with my live broker to avoid slippage - straight-through orders always suffer a degree of slippage, which is blamed (by them) on the "latency of your computer - there is a delay and price moves on." Yeah right - 100% of the time against me!"

 

Anyway - back to the trading situation.

 

What I usually do is not look at the price too frequently. I usually scan around for what is happening in other currencies. The mental effort is actually much less than it was a few weeks back, but I am usually happy to have made the positive trade. I know that if I persist with my strategy, I will become more relaxed and just allow it to do its work. And this week I am going back to trading directly from the 4H charts.

 

I am usually aware of the weekly trend and Daily trend, as well as all TF (including 8H) right down to 15M. It is a requirement of my strategy that I observe my indicators, as well as candle colour in the higher TF to check for agreement or lack of it.

 

I used to have a 4H and Daily system of my own devising, that would easily nail 200+ pips over a couple of days. I don't know why I left it to play with the lower TF - I would have been better served honing that strategy until I had the skills to trade it in my sleep. I believe I am at the point where I am able to revisit that system and incorporate the strengths of it into what I do now.

 

Such TF (4H and Daily) would probably lend themselves to the use of Heiken Ashi candles ... yes ... but I am happy enough with the Japanese candlesticks. The HA systems have a lot going for them too - once you learn to read them clearly - eg when the wicks are shortening there is a likelihood of reversal, and such things. Just involves learning a bit more and practice using them I guess.

 

Renko I have seen, but don't know anything about them, or even if they are available for the MT4 platforms. Same with P&F charts.

 

Regarding the trashing of my plans towards the end of my trades - not really - it is just that I don't wish to put my profits at any more risk than they have just been through to arrive in my a/c. I can see things through now, without taking early profits, but mentally I see this as the end of the trade - and I think I would find it hard to continue to see opportunity. Having said that, I have sometimes moved my TP levels further away - particularly when the EURJPY is on the move, and running hard in my favour - I love it!

 

btw - what is a "DOM" - is it a demo a/c? I am not familiar with that term, though I have seen it occasionally.