Plan Your Trade

8/3/2019 Plan Your Trade

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David PieperDav id P lape r t ie s been busys tudy ing the s to ck marke tslnce the late-90s. Aseerlyas:during his business:studies at univer:o;ity:=.ndrater ourtnqa career a s a nI nv e stmen t a n al ys t a t a b a nk ,he comb ined fundamen ta lanalysis with the benefits oftechn ical ana lysis. Mr Pieperroouses on tra"ing CFD~ :m(tworks :a s a nee lancewr l ts r Inthe fie ld of techn ical ana lysis.Fo r mo re ln to rme tlo n , vlslt his.blcq at wwwtrede-tljte.de.

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For most people, a home of theirown is and remains a key goalin life, Who has not dreamed ofa big house with a garden? Toa d8grse, calling a piece of landyour own means a bit of frssdomand independence. All well andgood - but what does that haveto do with trading? A great deal:Making the dream of owning ahome come trus requires a solid,real is tic plan. This begins evenbefore the actual conslruct io n ofthe house and includes a numberof aspects - above all, financialones.

The same goes for the dreamof being able to live a successfult rader's lif e. Again, it is all aboutf reedom, and here, too, thefollowing is tnue: Those whorush into the market withoutany preparat ion and thoroughknowledge of the way it workswill be bitterly disappointed - justlike someone building a housewho has nei ther a construct ionplan nor sllff icient equity and yetbegins with the construc ting ofthe roof before the basement isexcavated. The fol lowing articleis designed to show you whiche lements a trading p lan includes,what benefits it offers andwhy i t represents an importantprerequisite for long-termsuccess in the stock market.What Is a Trading Pian?Trading is no game, no lot teryand is not gambling. Trading is

Risk and moneymanagement representthe most importantand extensive part ofthe trading plan.

a business. After all, it is aboutrisking one's own capital andusing i l as eff ic iently as possiblein the markets, the only ob jectivebeing the steady, r isk-consciousincrease of the capital used.What at fi r st sounds a I ittle t rite,is actually the basis for successbecause you could not plan to besuccessfu l if t rad ingwere a pure lot tery, Butif t rading were all fun,a concrete plan wouldbe totally unnecessary.However, since it isa genuine business,proper planning isabsolutely key tolong-term success.The trading plan islike a business plan inth a l il defines all thedetails o f the venture.As in "normal" business life, allthe financial and organisationalmeasures are summarised herein a set of rules that serve as aleitmotif fa r the daily s tru ggle inthe markets: the initial situation,goals, t ime and resourcep lanning as well as concreteimplementation measures andcontrol mechanisms.

Make no mistake about it: Thetrading plan must not be seen asa trading strategy The latter on I ydescr ibes a par ticu lar t rad ingmethodology as well as its entryand exit rules and hence is onlyone component of many withinthe enti re trading p lan.

Who Needs a Tradingl Pian?That a trading plan alone is noguarantee for success in themarkets is likely to be obviousto everyone. It turns out,however, that active traders dobetter with a plan in Ihe longrun than those fellow traderswho operate without one. Why?

While a trading plan cannotpredict the future, it may providestrateg ies for situations that arebeyond the trader's control, Itis therefore important to controlthe things you can control asa trader - that is, to controlyourself. Nothing more, nothingless. So any trader who hasso far been unable to tradeprof itably, consistent ly andthroughout d if fe rent marketphases - and that is exactlywhat the goal is- should makea trading plan. This plan servesas a road map and definesthe most efficient route to thedestination.

What Are the Advantagesof a Trading Plan?The use of a trad ing planoffers many advantages tothe trader. 8y pre-planningtrad ing-re lated aspects, theenti re structure of the trad ingprocess is improved. Thisreduces the number of "bad

unnecessary ftrades. Throughclear and precif ramework thetrading plan repsychologicalload and preveirrational Iradinactivity, becausit does not reqany decision 1be taken in mimarket action,does require m

compl iance with the previoudefined rules and measures.A key issue is the monitor in

and contro l function, The traplan is similar to a route plawhich via GPS leads drivers(traders) to their destinations.Any potential deviat ions fromthe rou le are immediately vand can be corrected, Withoa functioning GPS signal orroad signs the motor is t unfawith Ihe route will probablyreach the ir destinat ion, let alearn the reason for gett ingThe t rading plan also allowsone's own performance tomonitored on a regular basi
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concerns not only the ac tualelopment of your trades and

account, but a lso questionsther the t rader abides by theirrules, that is their discipline.lysing the trading plan revea lst the trader has problemsand ident if ies the traders's toer's. This allows one to keepfect and immediate track ofr deve lopment and prompt lycountermeasu res incase ofs f rom the route .

to Create a Trading Plantrading plan inc ludes manyidual elements and shouldindividually tailored to the

sonality and resources ofh t rader. This is the onlyto ensura that the traderlater adhere to their own. What good is a suit thate wrong colou r and size?ver, everybody enjoys

ring a custom-made suitfits perfectly. We will look

en modules which are meanterve as a guide for creatingindividual trading plan, Eachule consists of severa lstions that the trader has tower as honestly as possib le- most importantly - also putn in writinq for the record.answers should be asise and detai led as possible.

1: Self-Analysisrstanding the psychologyhe masses is an important


tool for understan ding themechanisms of the markets. Butfor trading on e thi ng is of theutmost importance: recoqnlsinqone 's own psyche. The fol lowingproverb puts it in a nutshell: "Ifthou knoweth not thyself, WallStreet is an expensive placeto find out." So the first step ismainly about ident ifying yourgoals and your own strengths andweaknesses - both mental andknowledge - based ones. Shouldyou find it difficult to analyse yourown strengths and weaknesses, itis advisab Ie to use paper tradingto d iscover your own par ticu larbehaviour pat terns which wil lreveal your own st rerlgths andweaknesses . After all, your owncharacter profi le is a significantintluence on the subsequentcho i ce of the appropr iate tradingapproach and time unit. Themain barr ier between yoursel fand success in the markets isyour mental attitude. Banal asit may sound, that is exactlywhy it is important for you to bephysical ly and mental ly heal thy,to get enough sleep. and torecognise in which phases notrading should be done. For therecord, the trading p lan shouldtherefore sta te in wri ting underwhich internal and externa lcircumstances trading should beinterrupted or discontinued.

In the main part, the followingaspects should be explored:

Why do! want to be a trader? What specific goal do I pursuein trading? How do I define success interms of trading? Are there any professionswhere I c ould put my talents to

better use? How does my family feel aboutmy project? What type of trader am I? Am I a discretionary or amechanical trader? How much time do I have for

trading? Am I planning to be a long-,medium-, short- or very short-

term trader? Does the chosen time unit suitmy character? What are my strengths andweaknesses? Am I in the right frame of mind

to start t rad ing?Step 2: What GoalsDo I Pursue in Trading?Whi le there are many reasonsfor trading, there is one aspectth at unites all traders : the desireto make money with trading.Yet few traders ser iously thinkabout how much profit they arelooking to make each year. Butth at is precisely the basis forsett ing monthly, weekly and dailygoals. The same applies to ther isk s ide: Every trader shouldbe aware of' what percentageof total assets can be devotedto trading and what maximum

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down can be accepted inar. Set ting objectives willo rt overa ll p lanning, a llow's development as a traders monitored, and increaseivat ion. Each trader shou ldefore set speci fic but real is ticls - not [ust financ ial ones,also with regard to thei relopment as a person. Thel itat ive and quanti ta tive goalsuld be broken down intoual, month ly, and daily goals.would mean, fer example,the quali tat ive annual goaltrader is to develop theirstrategy for trending andays markets, to at tend

lar coaching sessions, andead specific literature. On atitative level, the objective

ld be to use the availableital of X amount of money toerate Y amount a year, andon. It will then be necessary tone how to reach these goalshow to "reward" oneself

achieving each of these

e most impor tant quest ionshat qualitative goals do Iave for the next I rad ing year?ow do I want to spread andeepen my knowledge ofeory and practice?ow much money do 1 want tohat quantitative goals do Iave for the next I rad ing year?


What goals do I have for eachof the next few months? What are the weekly and daily

goals resul ting from that?Step 3: Selection of Markets,Instruments, and Time FramesWhi le professional t raders, as arule , t rade only a small numberof markets, beginners tend towant to cover as many marketsas possible - usually not to theiradvantage. The trading plan hasto clearly def ine which markets areto be traded, The same applies tothe choice of financial instruments.Whether stocks, futures, options,or currencies are to be tradeddepends mainly on the accountsize, trading style, and emotionalconstitution of the trader,Dependi ng on the type of productt raded, cer tain pecul iar it ies interms of execut ion, t rading hours,account size and so on need to betaken in to account. For example,CFD trading is not just the same astrading warrants, and futures areye t another category that is differentf rom stocks or ETFs. So the keyissues confronting the trader needtc include the following: Which markets would I like to

trade and why? Do I know the ris k s specific to

the diHerent markets? What instruments do I w ant totrade? What time unit do I prefer? Am I planning to trade multiple

time units at the same tima? Which bro ker and t radingplatform will best suit my

trading style? What software and data feedsare optimal?

Do I have suitable technicalequipment? How high are the transact ion,

f inancing and slippage costs?Step 4: The Trading StrategyA trading strategy is noth ingmore than a f ixed set of rulesthat a llow the trader to reproducetheir trading style. For all intentsand purposes, a strategy is theopposi te of "gut" t rad ing. Theselection of a strategy dependson market conditions, the time ofday and the t ime frame traded,Looking at the markets, we can seethat there are only two conditions:t rend ing and non Irending phases.So what is clear at th i s s tage isthat every trader needs at least twostrategies for long-term success,When choosing your strategies,you should again ask yourselfsome pertinent questions: What - in concrete terms - isthe st rategy like, according to

which I t rade? Have I checked the strategy bybacktest ing or paper trading

prior to its live use? What is a realistic success ratefor this strategy? What is the expected value ofthis strategy?

T1) Dimensions of the Tradinq PlanMarkets lnetruments Time FrameStock markel Stocks intradayBond market ETFcs short-termMonetary market CFD's meoam-terrnCommodity market Futures tone-term

D et er rn n e w h eh r ne rk et s Y OL J \I r" !I nt to trade wilr. what in strument s in'",'hlcntlma rrurns

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hat is the drawdown of therategy on the backtest?hat strategy is used indeways phases?hat straleqy is to be ussd inending markets?hat are the long signals fore respective strategies?hat are the short signal s fore respective strategies?o I US8 gaps, breakouts,e traoements, or o ther entry

5: The Exit Stra tegyajorit y of traders spend mostheir time searching for theposedly ) best ent ry. And yet Ite exi t that determines whetherade makes a profit or loss.rtunately, a good exit turnsto be even more difficult thanentry and cannot, moreover , bed independent o f a stra tegy.trader should, therefore,ly examine the various exi tteg ies and estab lish a clearof rules delermining when andch measures come into playeach strategy. This includesquest ion of when to interveneaturely in cur rent t rades thate been secured by a stop. It

bso lu te ly necessary for theng plan to provide answers toquestions:

hich signal should I use fori ting a position?I use techn ical , volat il ity-ased, or time s tops?


What stop techniques do I usefor the strategy in question? How do I deal with trades that

are running in the direction ofthe stop? Do I exit befo re thestop? If so, what cri te ria have tobe met?

How dol handle trad es thatare al r eady quoted in the prof itzone?

When can I adjust my stop tobreak even? How dol calculate the pricetarget for a trade? When can I s ell half theposition? Which criterion must be met inorder for the remaining posit ion

to be closed?Step 6:Risk andMoney ManagementBecause of i ts central importanceto trading success, risk andmoney management represent t ilemost impor tant and extensive partof the trad ing p lan. Arguably, themost famous trading rule of themall -let prof its run, l imit losses-is on ly enforceable through theimpiementation of sound riskand money management. S implyput, r isk management comprisesall the measures that serve 10minimise or avoid losses.Rrstand foremost, this includes thequest ion of what the opt imalstop and proper position s izeare. Money management is acontinuation of r isk managementCapi tal preservat ion and the

general ion of earnings are amongthe most important funct ionsof money management. At thecentre here are several modelsto determine the cor rect posit ionsize. To obtain an opt imalposition size, r isk managementand r isk parameters must becombined wi th the dtfferentmoney management modules andmonitored regularly. The mostimportant quest ions about riskand money management are asfollows: What is my opinion of the issue

of r isk in general? What risks are posed by thebroker/hardware and software,

and what prolections are inplace for the Worst Case?

How much of the trader'soverall capita I is tradingcapital? At what drawdown will tradingbe discontinued or interru pted? What is the overall risk for opentrades? How high is the position risk? Where are the initial stops setfor each strategy? What position size result s from

that? How high is the strategy ris kand when is a trad ing strategydiscontinued and checked?

What shape is the trader in? What is the success rate of mystrategy? What is the risk/retum ratio(RRR) like?

F2) Sideways Phase "So Trend

Note-tl1m the markets go throu6lh dlffarent pl1a5eE Your Iradln9 plans h Qu ld I n cl ud e a r st e re n ce 'to now to deal W It h s tr uc nn al c ha ng es I nrnBI'ko9lbeh~oorS cr rc cc NIIIA trucceiqnulcnllr c.cor-r


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hen will trading beow does the trader behavef ter major drawdown andofit phases?at money managementdule is used?

hat strategies are used tootect profits?re methods to maximiseofi ts (scal ing-in) used? If so,ow is the position sizew that we have discussedmany elements of a

ing plan, we can moveto the actual planning ofading day. Especially atbeginning of your trad inger, we recommend that youri fic tas ks be perfonmedstructured way which willmote the development of aific routine,

p 7:.Before the Opening,one who has ever looked overader's shoulder wi II notice thatlatter always keeps calm andows a certain routi ne. This isof all trading phases : beforeactua l t rad ing, dur ing trad ingafter trading. As is the casether professions, a clear

ctur ing of tasks is benef ic ia l,in terms of efficiency anda psychological point ofThe trad ing p lan should

efore provide answers to theing questions:www.tradersonline-mag.com

Have I analysed the tradesrecently executed? Do I have open positions? Do existing orders need to beadjusted? Have my charts and theanalytical too ls used been

updated? Have I updated my scanningtools? Are my broker's accounts andmy account balance correct? Is my internet connectionstable? What issues are current lymovi ng the market? Have I done my research? How dol rate current market

sentiment? What do my scenarios look like? At what points would someinteresting trading opportunities

arise? Are there any important

economic/corporate data thatwill be released today?

What are my pi ans for today?Step 8: Follow-upAfter a gam e is just Ii ke beforea game - and it is precisely forth i s reason that the trading planmust include a rsferance to whichtasks need to be performed aftert rad ing or af ter t rading hours.The key element here is thetrading diary . Without keep inga trad ing diary, the trader ishardly in a position to judge hisqualities as a trader on the basisof possible sources of error and

learn from them - much like afootball team that would conducta video analysis of thei r ownmatches. This much is true: Allthe transactions performed butnot recorded in writing will belost irretrievably as a source ofinformation for analys ts. As aminimum, information should beentered on ent ry and ex it points,strategy, stops, price targets,support and resistance lines, andOHLC (Open, High, Low, Close) ofth e day as well as 0n the durationof the ind iv idual t rades. Fol lowingth e error analysis of ths t rades,there should also be a writtenrecord of what was done wrongand why. And again, there aresome questions to be answered: Have I I isted all the essential

in formation in my trading diary? Have r mads a writ ten noteof my thoughts and feelings;

moods before and after thetrade?

Have I saved or printedsoreenshots of the tradesexecuted? Have I adhered to my plantoday?

If not: What are the reasonsfor this and how do I inl:8nd toavoid these in the future?

Step 9:Without Discipl ineYou Will Aohieve NothingAll the previously presentedmodules of the trading plan willfall flat if they lack one thing:

discipline and the pat ience tostick to one's own trading pian.The good news is that disciplinecan be learned. To achieve thatobject ive, the neophyte trader inparticular must force themselvesto adopt behaviour that is of tencontrary to their habits andbeliefs. Depending on thei reducation, life experience and setof convictio ns, each t rader finds itmore or less difficult to implementthe measures necessary toachieve that discipl ir .e, Whilethis may still be relatively easy inprofi table phases, the situationin a drawdown phase is quitedifferent. You should now as kyourself these questions: How do I ensure that Iadhere to

the trad ing pian? What penalties are there forfailure to comply with certainrules in the plan? What measures do I take in

other areas of life to raise mygeneral level of discipl ine? What questions do , ask

mysel f a fter I have completeda profi table/h igh-Ioss makingtrade?

Step 10:Golden Trading. RulesAt the end of the trading plan,a lis t of the most importanttrading rules carl be found. Itserves as a kind of compactsummary of trading guidelines.The t rader should write downthose resolutions which are of

the h i9hes t personal priorit y.following rules are among tmost important and well knbut do no t claim to be comp1) Protect your capital.2) Always place a stop.3) Limit your losses, let your

profi ts run.4) Trade what you see, notyou think.5) Never chase a trade.6) Never make your stockscheaper if your position is

negative territory.7) Keep a trad ing d iary.8} Discipline is everything.9) Ke8p it simple.10 ) Never trade dur ing the rof important news .

ConclusionThe trading p lan now contaiall the important elements acomplete. This means thatis nothing any more that s tain the way of trading success- well, almost nothing. At anrats, a trader who has thougabout the points out lined heand has put them in writingwell on their way there. Insteof constant ly searching for"Holy Grail", you should woron your personality and askright questions. Aft8t a ll, trais nothing more than controlone's own person. Withoutand the appropriate set of rthis endeavour is very unlikeen joy success .

Plan Your Trade

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