Trading Plan / Style

Beginner Questions
1

Hi all,

How is the following for a first timers attempt at writing a trading plan / style?

I am a discretionary day trader.

Discretionary in the fact that I will use both fundamental and technical analysis.

At the beginning of my trading week / day / session I will:

Review economic reports, news, events and market data that has been released / occurred while I have not been following or trading (eg overnight).
Briefly review the currencies action from when I have not been trading.
I will find out what economic data and expected results will be released during my trading session.

While I monitor / study my chosen currency pairs I will:

Continue to follow news, events, developing reports during and throughout my session as necessary.

I can then move onto the technical analysis of the currencies chosen to monitor / trade for the session.
I will be looking for entry and exit points, tools for this may include:

Support and resistance lines
Trendlines
Moving averages
Other chart indicators such as, Stochastics, RSI, Bollinger Bands
In accordance with my system.

I then will be deciding on the following:
Stop loss
Profit / pips
Entry and exit rules
In accordance to my system.

I will be risk averse as I do not want to lose too much per trade, hence the need to use tight stop losses.

I will not scalp.
Scalping is the practice of trading larger lots and taking few pips out of the market.

I will abide by The Second Major Axiom
“Always take your profit too soon.”

I will decide in advance what gain I want from a trade position, when I achieve this I will get out (minor Axiom III)

No system is perfect or flawless.

While my trading system may show me when and where to enter and leave a trade, I will make the ultimate decision.

Comment, suggestions and discussion please.

Hope you all have a great Easter Weekend.

2

How much time can you devote to this?

It sounds like your trading plan is pretty time demanding, make sure you have enough time available.

3

Thanks for the message.

I have plenty of time.
Reviewing earlier reports, news etc, I’m thinking I might devote an hour (maybe 1.5hours), though not sure yet, though when I am testing this out this will be something I will be taking note of, I might find that I do not need to do that much reviewing.
The plan is actually longer than the system, its mainly the rules etc.
The system is similar to the “So Easy It’s Ridiculous” in the School of Pipsology.
Instead of trading on a daily chart I am at the moment looking at the possibility of trading from a 5min chart (might be suitable to other time frames, will look at that later), trading several times through the day (whatever my session time is) and the time periods may need some experimenting with as well.

What preliminary reviewing of news, reports etc do you and / or others perform before trading?

4

I actually pay virtually no attention at all to news. NFP and a few other major announcements can have an impact on my trading decisions but as I trade daily bars, news spikes mean very little to me.

I don’t have enough time, I’ve found, to follow along with fundamentals and so I made a choice to be a 100% chartist - trade what you see, not what you believe, or even worse, what someone else believes.

Usually I’d say it’s good to start with higher time frames such as 4H or daily and practice on them until you can prove to yourself that you can consistently take money out of the markets. Once you can do that, then you can move down to lower time frames but you may find no reason to do so by then.

5

I might find that I don’t need to do anywhere near as much reviewing as I am thinking at the moment.
I might also find during my testing and watching the currency that the news may be of little relevance.
If so I can then reduce the amount of time spent on reviewing and keeping up to the minute with news.
(Maybe I could review my plan/ rules and modify that now before beginning).
I was / am thinking that I could watch the market and act accordingly as it unfolds during the day and that there would be several trading opportunities during the day (or whatever time I might have for a session).
Instead of trading for say six hours non stop, I could trade for an hour or two at a time (or whatever time I have for that day) and spread those mini sessions around.
It could be quite flexible.
How would I modify all this to trade longer timeframes? I think it would be very similar with some changes to the time periods associated with the indicators.
Why is it recommended to trade longer time frames for newcomers?
I figured that because I have ample time, I could trade intraday.

Traders have to separate themselves from the pack for success :-}

Continue with the comments, suggestions please :slight_smile:

6

Main reasons to start with longer time frames:

[ul]
[li]Reduces tendency to overtrade (aka video game behavior) and to overmanage/second guess trades[/li][li]Longer time frame bars, S/R levels etc generally will hold more significance and therefore give somewhat better predictability.[/li][/ul]
Someone wise said something like: if you can’t show consistent profitability over three months by trading daily charts, then why on Earth would you think that you could do it by trading 5-15min charts?

Then again, we all have different personalities and we have to find what suits us. For me it’s higher time frames which is a must with a full time job that I’m at during London and early NY. Others will trade 5min charts and be good at it.

If you’re new to trading, I suggest you focus on controlling risk and money management. These are unsexy things but they are also what sets winners apart from losers. It’s a bit like the difference between traders and gamblers.

I’m not sure it’s of any help, but here’s what my trading plan looks like: 301 Moved Permanently

7

Tom, Hi.
What is the First Major Axiom?

The Ever Quantifying VIPER

8

It is:

“Worry is not a sickness but a sign of health. If you are not worried, you are not
risking enough.”

10

Tom, I submit for your consideration the following.

The First Axiom for trading should be

Protect And Defend Your Capital

Your trading capital is your Trading Blood, without this “Blood” your whole trading operation is shut down. As your body cannot live without literal blood, your trading cannot live without capital. It is funny, to me anyway, that in the world society we live in, people hate rules, and I guess that may be why most Rookie traders never grasp this one simple rule, and make no mistake about it, this is a rule, it is an absolute, it is a singularity in a sea of ambiguity.

If you lose your capital you are dead. If you lose your capital you are dead, If you loose your capital you are dead. There may be many ways to trade, time-frames, money management, products etc. But the bottom line again is “If you lose your capital you are dead”.

Quote
"Worry is not a sickness but a sign of health. If you are not worried, you are not risking enough."

This is an interesting statement, but I would also submit the following.

If you are worried about a trade you are in.
(I use the term “you”, in the generic sense, not the personal)

  1. You are too emotional for the Size, Position, Direction of the trade
  2. You lack confidence in yourself and or your system.
  3. you lack confidence in your money management, or have no money management

So anyway, just some observations, I will now go and slither back under my tree root

The Ever Observant VIPER :slight_smile:

11

That statement I quoted is the first major axiom from the book The Zurich Axioms by Max Gunther.
I do agree with your comments, all valid points.

12

I think Tom is refering to The Zurich Axioms. They are supposed to be rules about risk written by Max Gunther.

Tom I think you have some good ideas the only thing that stands out to me is your focus on fundamentals while trading a 5 minute chart. The problem with fundies is timing. Even when news is bad for a currency, its value can still go up. I think you would serve yourself better to focus on technical analysis while being “aware” of news because news will move price wherever it wants and technicals basically fail at these times.

I agree with Viper you should definatly focus on protecting your capital.

Zurich_axioms.pdf (346 KB)

13

Yes that is correct Johnny, I am referring to those axioms (I should have made that clearer for all earlier, sorry about that folks).

Since I have written my first plan, those points you raise regarding the time frame and fundamentals I have been thinking about and thinking that I may not need to to focus on them as much as I was thinking originally.
As this is the first version of my plan I knew that it may not be quite correct or accurate and that some of it will be modified.
I will write down new ideas or possible amendments and or rewording or removal of parts and see how I can better word it etc
It is better than having no ideas and nothing written down.

14

you are definatly on the right track. The reality is you will probably never stop tweaking your system. As you learn your markets and learn yourself beliefs are bound to change and so will your trading plans.

15

Agreed.

Thank you to all who have replyed.

We are always learning.