Something Interesting in Financial Video March 2016 - page 2

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Sergey Golubev
Sergey Golubev  

Forum on trading, automated trading systems and testing trading strategies

Something Interesting in Financial Video February 2014

Sergey Golubev, 2014.01.31 08:39

Every trader needs one. Do you know what it is?

Every trader needs one.
Do you know what it is.
Many times it's the difference between success and failure in the market.

Watch the fifth episode of the "Traders Whiteboard" series and learn from master trader Adam Hewison on how to incorporate this key element into your own trading.


How to Build a Four-Point Trading Plan

The ‘What’

The most important aspect of a trading plan is the definition of the type of trader that you are. And if you’re a new trader and aren’t quite sure of what type of trader you want to be, it’s ok to modify this as you see more results and get a better idea of which direction you want to move towards.

The benefit behind this is that it helps to keep you grounded. Let’s say that you’re a technical swing trader, but with an upcoming NFP report you see an especially attractive setup that you decide is worth of a quick scalp position.

Well, if that scalp doesn’t work out and a loss is taken – the ‘what’ of a trading plan serves as a reminder that you were trading outside of your comfort zone.

The ‘How’

A trading plan is worthless without a definition of ‘how’ a trader wants to enter and manage positions. This can be as simple as ‘I’m going to scalp trends,’ to as complex as ‘I’m going to take scalps with 8 period EMA crossovers on the 5 minute chart when price is below the 34 period hourly EMA.’

It really just depends on how in-depth you want to be. The benefit of having a more well-defined strategy in this portion of the plan allows you to come back later to troubleshoot if results aren’t meeting your expectations. A more loosely-defined strategy in this section of the plan may lead to a lack of discipline when you’re actually placing trades as the trader hasn’t made the commitment to the strategy by integrating it as part of their trading plan.

An important note here – the strategy should be yours, customized for your unique risk tolerance and personality. This should also mesh with the ‘what’ of the trading plan, as this is an extension of the type of trader you are.

The ‘When’

This part of the plan is often missed by traders; as many markets somewhat define when you’re actually able to trade. If you’re a stock trader, well you have to adhere to open market hours. Even then, many traders choose to focus on the first or last hour of the day, as this is where the majority of volatility will often take place.

But in the Forex market, there is quite a bit more flexibility available to the trader – and this isn’t always a positive thing. The FX Market moves 24 hours a day, and will often display differing characteristics based on the time-of-the-day and the area of the world that is providing liquidity.

The importance of defining the ‘when’ of a trading plan is that it allows traders to learn and improve upon their strategies and approach with as few moving variables as possible. If a trader normally implements their strategy during the Asian session, but for some reason couldn’t get to sleep and finds themselves trading during the London open with the same strategy; they are introducing an entirely new and unfamiliar risk into their approach.

The ‘Why’

The last part of the plan is, in my opinion, the most important. This is where you write down your goals and reasons for becoming a trader. This can be as ambitious as ‘I want to be a billionaire,’ to as reasonable as ‘I want to replace my income so that I can spend more time with my family.’ I strongly encourage you to set realistic, honest goals otherwise they’re nearly impossible to adhere to. I speak from experience.

Trading isn’t easy. It can be difficult, and tough, and costly, and frustrating all at the same time. Especially when we have fundamental environments that, as we say in Texas, ‘is about as clear as mud.’

The ‘why’ of a trading plan serves as the reminder for why you’re willing to go through the pain; and when times get difficult or a major drawdown is seen on the account, this can help to provide perspective of ‘the bigger picture.’ This allows the trader to take a step back in order to realize that the reasons they want to become a successful trader are worth any trials or tribulations that they may go through.
If the goal doesn’t seem worth the frustration any longer, then at the least you know its time to take a step back and either re-evaluate your options, or quit.


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