Posts Tagged ‘trading plan’

escape_from_alcatraz.jpg Coach Nick Jensen has provided part II of a great article he did last week, What does Alctraz and your trading rules have in common? Thanks Nick!

Last week I talked about the importance of having a trading plan and mentioned that having a psychological plan as well is an effective method to deal with market conditions. I have put some guidelines together that can be included in this plan and some of the questions you may want to ask yourself as you develop it. One thing I want to point out is each trader trades at a different skill set level and so each
trader will also trade at a different psychological level as well.

This plan needs to be yours; spend some time introspecting, really trying to understand how you tend to react in different market conditions. Then as you evolve as a trader this plan should evolve with you: do not stay stagnate, you need to progress and strive to achieve a higher level of trading competency as well as psychological competency.
Losses: Trading is not a business of perfection but a business of probabilities. Doing A, B and C does not always equal D and that is OK. You do not have to win on every trade but make sure that you are cutting your losers loose. How do you react when you take a loss? Identify those emotions and realize it is normal to take a loss in the market as long as your risk was justified when you entered the trade and you are taking on a minimum amount of risk.
·Do I fear taking a loss?
·When I take a loss how will I react to the market? (I say “next”)
·How many losses in a row will I take before re-evaluating my system or the execution of my system? (I have taken in 8 losses in a row before, it could be more)
Wins: It is just as important if not more important to control your emotions when you have a winning trade. Do not fall into the trap that you are invincible in the market. It is nice to go on a winning streak but that’s all it is: a streak. Take the profits, be grateful for them but don’t be surprised or disappointed when it comes to an end.
·What will I do to stay calm when I win a few in a row?
·Will I reward my efforts and if so how?

Capital Draw Downs: It is normal for your portfolio to fluctuate in value. Typically the more aggressive of a trader you are the wider the swings in your account. Identify what would be a typical swing in your account during normal trading activity. What you need to identify is how much of a capital draw down is abnormal and warrants a halt in trading to re-evaluate what may be going wrong.

·What percentage drawdown in my account will trigger a suspension of trading?
(In my opinion a 20% draw down is maximum)
·I can not trade real money again until I………….. (What things do you need
to identify and or fix before you can trade live again)

Emotional Extremes: We all know that emotions are a normal part of life. They are also a normal part of trading as well and that is nothing to run from. It becomes dangerous when those emotions get to extreme levels because we tend to become irrational.

·How am I going to identify what are normal emotions and what are extreme
·If my emotions are at extreme levels; why and what can I do to change it?

Again, in order to stand on the banks of Alcatraz and know we’re going to reach the other side of the bay, we have to be prepared to deal with those things in which we can not control. These are a few suggestions to prepare you to do so, feel free to add to them or take away from them as needed.



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