Trading should be treated as a business. As every other type of business, in trading we also need to have a business plan. It helps us be in control of things. So, here is mine:

PERSONAL TRADING PLAN

Executive Summary

My main strategy is to swing-trade stocks and options. Usually, the average holding period is from 2 days to 2 weeks. In the volatile markets I will also consider day-trading or even scalping. I have no intention to implement any difficult strategies like credit spreads or iron condors. I will be just buying/shorting stocks, calls or puts and also vertical debit spreads (in cases where my capital risk per trade is hight).

I will analyze trades by looking at the price action and volume mainly but sometimes I’ll use MACD divergence to spot possible reversal, Fibonacci levels to help me determine support/resistance, and Moving Averages for trend confirmation (on the daily charts only).

For the most part I will be using trend following system (HH/HL/LL/LH), support/resistance levels, breakouts (from patterns) and patterns (double bottoms/tops, triangles, bear/bull flags) for trend confirmation.

This analysis will help me to determine exact entry and exit points, so any kind of emotional factors will be excluded.

Another important part is Money Management:

1. Max total equity risk per trade is 1%
2. R/R of any given trade must be at least 1/2
3. When the trade moves in my direction - move stop-loss to BE.
4. If the move hasn’t occurred as expected – cancel trade.
5. Cut losses according to plan.
6. For a longer-term trades use a scale up strategy (add on the next pullback or support/resistance level).

I will also be paying attention to times of important economic news/contract expirations which I have never done before and see under what conditions are most ideal for me to trade in. I will, for the most part, stay out of dull times unless I see something that MUST be taken.
(NB! Not having a position is also position)

Plan Details

• Instrument’s Traded
• Money Management
• Risk
• Goals
• Position Size
• Entry
• Exit
• Stop Loss
• Targets
• Patterns Traded
• Indicators
• Trading Journal
• Basic Rules
• Additional Thoughts
  • Five Fundamental Truths – Douglas
  • Seven Traits for Consistent Winner – Douglas
  • Bias
  • Patience
  • Discipline
  • Attitude
  • Loss and Failure

Instrument’s Traded

• Stocks
• Equity options
• ETF’s

Money management

• #1 Rule, Capital Preservation
• Scale out – exit trade in several steps. Always have several targets – 1^st, 2^nd 3^rd – so if your 1^st and 2^nd targets are hit you will not have to worry if you make money on 3^rd – just move stop higher and let your winners run!
• Let your winners run – always have several targets in place. (scale out)
• Risk to reward ratio (minimum 2-1)
  • 3-1 Standard (Swing/short term)
  • per specific pattern trade set-up rules
• Keep losses small (use both mental and hard fix stops)
• Never allow a big winning trade to turn into a loser. Stop yourself out if the market moves against you 20% from your peak profit point.
• Maximum daily loss limit = 1% of account balance
• Use VERY strict rules when averaging down (read lower)
  
• Risk Management at all times

Risk

• Never risk more than 1-2% of account on any single trade.
• Never invest more than 100% of account on any single stocks trade.
• Never invest more than 5-7% of account on any single options trade.

Goals

• Capital preservation (see Risk, Money Management)
• 10% per month.
• Never allocate more than 20% of portfolio for aggressive investments/trades
• Minimum of 75% of trading net earnings to be re-invested

Position Size

• 1 contract (100 shares) until consistently profitable (3-months minimum)
• (scaling out) 2 contracts (200 shares) until consistently profitable (3-months)
• (averaging up) 1 contract with 1 contract’s addition’s until consistently profitable (3-months)
• Double contract number allowed every time the account is up 5000$

Entry

• Multiple confirmation, confluence of indicators (MACD, EMA).
• Trend line pierced confirmed by closing bars (not wicks) of support or resistance.
• Dual confirmation of breakout required by confirmation 20 cents past closing bar (magic 20 cents)
• Daily charts for trend confirmation.
• Faster charts for precise entry – intraday charts (5- and 15 minutes)
• As for entering trade with a “buy stop”/”sell stop” orders, it may happen so, that market conditions have already changed, and the best option now is to wait for more signals or just to cancel a trade at all (when you see that the stock looses momentum and will almost certainly reverse soon).
• When trading counter-trend inside a bigger trend, use only 1/4th of your average position size. In this case average down may be useful. Before entering a trade try to determine another level where you will add to existing position. After adding another 1/4th place a VERY tight stop in case the price goes against you. As soon as the stop is hit – bail out. This strategy is very useful, when it is impossible to determine exact entry point and the momentum looks weak.
  

Exit

• Exit Prior to Major Support/Resistance
• Trend reversals
• Exit trade when reason entered is no longer valid
• Weird price action (choppy or too fast)
• Tighten trailing stop upon
  • Reaching initial target
  • Approaching major support/resistance
  • Approaching recent swing high/low
  • Major Pivot points, Daily
  • Gaps

Stop Loss

• Initiate protective stop at time of trade # 1 Rule,
  • ALWAYS WITHOUT EXCEPTION
• Adjust to break even (BE) to protect capital when trade moves favorably (when it moves past target 1)
• Trailing stops adjusted to strategic levels (short term trades)
  • Support/resistance
  • Swing high/low
  • Pivot points
  • Gaps
• Never lower a stop in a long position, or raise a stop in a short position
• Never move stop unless to protect profits
• Never cancel a stop loss order after you have placed it!
• If trade reverses, take small loss and move on.
• Use 2 types of stops:

o Fix hard stop (2%-3%) – for swing trades and emergency situations (e.g. computer crashes in the middle of a trade). But under normal trading conditions (if you are able to monitor the trade) you will close a trade before the stop will be hit.

o Discretionary/mental stop – a weird price action, change in trend, fake breakout – in other words, a stock acts not as predicted. In this case, close trade before a hard stop is hit. NB! If the situation changes, you can always reestablish your position.

Targets

• Fibonacci retracement levels for prediction (if there is no any other support/resistance levels)
• Pattern height or mid-points as per specific pattern trade set-up
• When calling Tops or Bottoms use only 1/4 of your average position size and tight stops.
  • Target sweet spot of trade (80% of range)

• Maximum trades per day – make only these trades where you have carefully analyzed Entry price, Targets, Stop levels.
  • • Do not over trade, be patient and wait for opportunities
    • If not 110% confident in trade, sit-out
    • Never trade when you feel dizzy or tired
      

Patterns traded

• Uptrend / Downtrend lines
• Tops and Bottoms (reversals)
  • Double Tops / Double Bottoms
  • M-Top / W-Bottom
  • W-Top / M-Bottom (rare)
  • Triple Top / Triple Bottom
  • Island Reversal
• Rectangle / Horizontal breakouts
• Flags
• Triangles
• Failed Head and Shoulders
• Head and Shoulders
• Wedges
• ABC, 123
• Gaps
• Dragon failure
  

Indicators

• • Support and Resistance levels
  • Trend lines
  • Horizontal Lines
  • Market structure (HH’s, LL’s, HL’s, LH’s)
  • Pivot Points
  • Time and sales (tape reading)
    
  • Fibonacci Retracement percentages (50% mainly)
  • MACD for divergence
  • 21, 50, 200-EMA
  • Bollinger Bands to measure volatility

Trading Journal

• Maintain daily records of trading activity and results.
• Note reaction to special events, mood, thoughts and questions which arise
• Post daily charts with annotations of Trades taken and trades considered
• Review often
• Learn from mistakes
• Modify Trading Plan accordingly

Basic Rules

• Do not deviate from trading plan
• Paper trade until consistently profitable before risking real money.
• Assimilate a set of personal trading rules that works for you.
• Keep it simple
• Trade with the trend: market, sector and equity
• Use VERY strict rules when countertrend trading
  • exception for specific pattern strategies, per trade set-up rules
  • ALWAYS use MACD for confirmation
    
• Reject buy/sell signals if not consistent with other trends
  • never trade a dip without conducting research
  • MACD divergence when buying a dip
    
• be aware of upcoming announcements
  • Do not trade FOMC day-first 6 months
• Review positions nightly (swing and longer term)
• Become proficient in current strategies before adding strategies
  • initially trade index’s, then sectors, then stocks
  • use price action and volume as primary determination
  • go for sweet spot, wait for confirmation
• Back test all new trading plans and strategies (1-2-3-5 year periods)
• Paper trade all new strategies
• Only trade long positions with strong fundamentals / short positions with weak fundamentals (Swing/medium term)
• Use your own research and methods, when trading, avoid following advices blindly – always compare other people’s view to your own.
  
• Continue learning

ADDITIONAL THOUGHTS

Five fundamental truths: (Mark Douglas, Trading in The Zone)

1. Anything can happen
2. You don’t need to know what is going to happen next to make money
3. There is a random distribution between wins and losses for any given set of variables that define an edge
4. An edge is nothing more than an indication of a higher probability of one thing happening over another
5. Every moment in the market is unique

I am a consistent winner because: (Mark Douglas, Trading in The Zone)

• I objectively identify my edges.
• I predefine the risk of every trade.
• I completely accept the risk or I am willing to let go of the trade.
• I act on my edges without reservation or hesitation.
• I pay myself as the market makes money available to me.
• I continually monitor my susceptibility for making errors.
• I understand the absolute necessity of these principles of consistent success and, therefore, I never violate them.

Bias

• Enter each trade with no Bias
• Trade the facts, remove emotion
• Lose your opinion – not your money.
• Successful traders isolate themselves from the opinions of others.
• In the world of money, which is a world shaped by human behavior; nobody has the foggiest notion of what will happen in the future. Mark that word – Nobody! Thus the successful trader does not base moves on what supposedly will happen but reacts instead to what does happen.
• It is better to be more interested in the market’s reaction to new information that in the piece of news itself.

Patience

• Standing aside is a position.
• Continually strive for patience, perseverance, determination, and rational action.
• Never get into the market because you are anxious because of waiting.
• It’s much easier to put on a trade than to take it off
• Treat it gently by allowing your equity to grow steadily rather than in bursts.
• Not only is patience required to enter a trade, but imperative for letting good trades do their own work.

Discipline

• 100% discipline and consistency
• Always discipline yourself by following a pre – determined set of rules.
• You must have a program, you must know your program, and you must follow your program do not become complacent
• Never attempt to call Tops or Bottoms
• Avoid getting in or out of the market too often
• Successful traders have a well-scheduled planned time for studying the markets.
• If a market doesn’t do what you think it should do, get out.
• When the ship starts to sink, don’t pray – jump.
• The difference between winners and losers isn’t so much native ability as it is discipline exercised in avoiding mistakes.

Attitude

• Keep a positive attitude, no matter how much you lose. Another opportunity will present itself.
• Don’t take the market home.
• Successful traders are not afraid to buy high and sell low (small stops will protect your)
• Successful traders buy into bad news and sell into good news.
• Beware of large positions that can control your emotions. Don’t be overly aggressive with the market. Only take positions which you are comfortable with and can accept if trade goes south.
• You must believe in yourself and your judgment if you expect to make a living at this game.
• Be humble – on every trade there exists a more experienced trader on other side

Loss and Failure

• Nothing works all the time, small losses are inevitable
• Losses make the trader studious – not profits.

• Take advantage of every loss to improve your knowledge of market action.

• Expect and accept losses gracefully. Those who brood over losses always miss the next opportunity, which more than likely will be profitable.
• Accept failure as a step towards victory
• Have you taken a loss? Forget it quickly. Have you taken a profit? Forget it even quicker! Don’t let ego and greed inhibit clear thinking and hard work.
• A loss never bothers me after I take it. I forget it overnight. But being wrong and not taking the loss – that is what does the damage to the pocket book and to the soul.
• One cannot do anything about yesterday. When one door closes, another door opens. The greater opportunity always lies through the open door.
• Remember that a bear market will give back in one month what a bull market has taken three months to build.