The Trading Plan

Trading is a business, so you have to treat it as such if you want to succeed. Reading some books, buying a charting program, opening a brokerage account and starting to trade are not a trading plan. A trading plan is a structure, or a set of guidelines, to define your trading activity. It can be an extremely useful tool to help you focus on planning and executing your trading strategy.

A trading plan is a complete set of rules that covers every aspect of your trading life. Many experts refer to the need to have an ‘edge’ which will tip the balance of probabilities of success in your favour. In itself, a plan is not an edge but, over time, the trader with a plan will fair a lot better than the trader without one. Many amateur traders do not have any sort of plan to trade by, and enter the markets with scant regard to their risk and profit objectives. Suffice to say, comprehensive risk and money management strategies lie at the heart of all good trading plans.

Traders with a plan have the ability to monitor their performance. They can evaluate their progress continually, day-by-day, in a way that is objective and comprehensive. This enables them to trade without emotion and with minimal stress. Trader without a plan tends to rely upon gut feeling, hunches and tips etc. Trading for them is a nail biting, emotional roller coaster that results in financial loss.

Obviously, a plan does not guarantee success; that would be too simple. However, a good plan that is adhered to strictly will help to minimise losses and enable you to stay in the game a lot longer than traders who do not have a plan. There is no absolute blueprint for the perfect trading plan, every trader is unique, and different styles suit different people but there are certain universally accepted elements to consider:

- Trading Goals
- Markets, Instruments and Timeframes
- Tools of the Trade
- Mental approach before Market Opens
- Trade Strategies, Setups and Entries
- Risk and Money Management
- Exit Strategy
- Review after Market Closes

- This is a quick summary of my trading plan. Just keeping it simple:

- I trade Emini SP500 during US session (9:30am-12pm/1:30-4pm ET).
- If I get decent win rate in AM, trading PM is totally unnecessary.
- I keep in mind RTH timeline, Initial Balance, Europe-Bonds close.
- The most profitable sequences are AM hours until Lunchtime break.

- First, I watch the bigger picture to define the current auction range.
- Then I monitor the Globex chart to figure out bullish or bearish bias.
- Then I prepare daily plan based on previous day and overnight bias.
- I set 'Line in the Sand' LIS, and possible bullish/bearish targets.

- I trade basic profile setups based on bullish or bearish imbalance.
- I trade setups on sequences based on average 1 win return on risk.
- A typical day for me would yield 3-4 trades (U.S. morning session).
- My plan is very specific. There are days when I don’t take a trade.

- The most important part of my trading is to get a good entry price.
- My best entry is as close as possible to where trade idea is wrong.
- I look for ES/SP convergence on entries and key levels for targets.
- All these levels are not absolute and are valid until they are hit.

- If buy/sell pressure is not on my side, I’m cutting trades quickly.
- My win rate overall is about 60%. A good day, 5 trades 2 loser.
- If I get 3 losers in a row on a single day then I’ll stop trading.
- If I exceed my daily loss limit ($500/contract) I take a break.

- If the market is moving in one direction I never fade it.
- I never try to buy the low or sell the high of the day.
- I never try to guess the end of a directional move.
- If I lose a good entry, I never chase the market.