Newbie Developing Trading Plan

Trading Discussion Risk Management Practices
1

Hello all,

This is my very first post so be gentle. I am developing my trading plan and need some advice. Discipline is everything, and knowing yourself is even more important.

Fact 1: I AM GREEDY
Fact 2: I FOLLOW SYSTEMS.

I know this seems like a kick in my own balls but it’s the truth and admitting it and using my weakness to my advantage is the only way to progress.

While developing my Trading Plan (TP) I asked myself a very legitimate question: What will I do if I meet my daily goal (0.5% of Balance)? Will I (be greedy) and continue to trade (and risk losing my wins) or will I just stop for the day?

As I said I’m greedy so I know that I won’t just stop, so I need to devise a system to tell me enough is enough. I accepted that I can’t be right on every trade (otherwise we wouldn’t even be having this conversation lol), I am looking for an X number of failed trades that I should stop trading after. Currently my TP says that I am not to lose more than 10% of my balance in a day, which equates to 5 failed trades if risking 2%. I am thinking that I should set this number “5” to be my maximum failed trades in a day. What I mean by this is that even if I am ahead and made big wins, as soon as I fail 5 trades I will quit for the day.

How does this sound? Is the number 5 ok? I plan to trade positions from 5 minutes to 4 hours if that makes any difference.

Any advice is much appreciated.

Thank You
Chuck

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You are on absolutely the right course by developing a plan before trading - remember, its Ready, Aim, Fire, not Ready, Fire, Aim.

I do hear people advocating stopping trading and there are good reasons for doing it. But there are also good reasons for not stopping despite a losing run.

If one of the following might apply, stop trading until you can resolve the specific problem -

  1. the losses are emotionally charging your trading - e.g. you’re trying to get revenge, you’re getting more desperate to make up the lost capital, you’re ramping up your leverage so that just one good trade will make you whole again etc…

  2. market conditions have changed, making your strategy temporarily inapplicable - I think this will be very rare but we can suppose a dramatic geo-political event, or a surprise big central bank interest rate change etc…

  3. your strategy is good but you are breaking your own rules, either accidentally or wilfully - have you re-set your indicator parameters? are you cross-checking the different and appropriate time-frames? has greed over-ridden filters? etc.

  4. your strategy is not good - if its not coping with normal market price action, changing volatility etc., something is wrong, so back to the drawing board.

BUT, remember that if your strategy has a win rate of 65% across 1000 trades (real or tested), that definitively does not mean you will get 65% across any 100 only trades of the same type. The smaller the number of trades, the less likely your win rate is to be predictable. In which case, why stop trading after losing trades? The sooner you get through the losers, the sooner you will get back to the steady 65%. What difference does it make if your losers come in a run on one day? - none in practice as long as you abide by your usual money management rules. Just something to think through.

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I don’t (of course) disagree with a word Tommor says, just above.

Sounds entirely logical and reasonable, to me. :cool:

I also “don’t just stop”, at the moment. (I sometimes have done, in the past: after “2 full wins, net (i.e. after deducting losses)” I used to stop for the day, at one time, when I had more other things to do. But that was about my own everyday life, not about “greed” (I think!).

My perspective on the reason is a bit different from yours. I always feel, [I]as someone unaffected by emotion while trading[/I], that “I have my edge and I want to apply it to the market as often as I can”. So I don’t see the point in “just stopping”, really.

I think it depends on your degree of risk-aversion, and the degree of confidence/certainty you have that your methods [I][U]do[/U][/I] have a genuine edge. I don’t trade without [I]knowing[/I] that - which is probably part of the reason I’m unaffected by emotion when trading (the rest is just the fact that I’m particularly unemotional anyway).

I must say that for me, with 2% position-sizing, the number 5 would be terribly high: it would be a real disaster and a huge shock for me to lose 10% of my account in a day. (That’s just about “risk aversion” - and my position-sizing is a lot smaller than yours.)

About the same as me, but my [I]median[/I] average is [U]far[/U] nearer the lower figure, and I typically take 7-8 trades per day (and I’m guessing that you’re envisaging fewer?). I do think trading-frequency is also very relevant to all these considerations.

Again, I don’t wish to detract from a word that Tommor has wisely and helpfully said, above.

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Thank you. That was so helpful. I am new as well and I have been trading forex for just over a week. Without a plan I got emotional and all your points applied.
What should my trading plan include please?