Opening Position
August 2011
“Create a trading plan”: That is the advice that experienced traders give to aspiring ones. You are faced with so many options when it comes to trading, such as what to trade, what indicators to use, what systems to use, what time frame to use, and so on, that it becomes overwhelmingly difficult to find a starting point. It’s so tempting to just trade something that someone else made so much money from that more often than not, you find yourself in a situation where you are trading something without following a well-thought-out plan. And therein lies trouble.
Whether you are a system trader who applies several tested trading systems or a discretionary trader who trades based on what you see happening on a price chart, you need to follow a plan that you have put together for yourself. This plan should include very specific setups you are looking for, particular strategies or systems to apply when these setups appear, and logical risk management strategies already in place if things don’t go the way you want them to. But even this can be difficult to put together.
I have found that picking one stock, index, currency pair, or futures contract and analyzing it till you can’t analyze it any more will help you understand how price moves for that one tradable. See where price is with respect to support or resistance levels, previous highs or lows, or the current trend and observe how it reacts. Look for price gaps and see if over time they get filled or if they act as support levels. Look for price patterns and determine how prices behave after a pattern has completed. It helps to make notes of your observations. You’ll see that not everything moves the same way. Each tradable will have its unique characteristics, and once you understand them, you will be ready to chart out a trading plan for yourself. This is a monumental step, but it doesn’t end there.
As you’ll find out, putting together a trading plan is not the path to guaranteed success. As you’ll discover from our interview with trader Robert Joiner, you need to have the discipline to analyze all the trades you make, you have to have determination, and you have to gain consistency in your trading. You must identify what works well for you, but you can’t limit yourself to one strategy or setup. You need to be well prepared to face different scenarios. Perhaps you would like to set up your trades using Elliott waves similar to what Ryan Henry explains in his article “Manage Your Trades With Elliott Wave”. Or maybe the setup described by Jamie Theiss in his article “The V-Bottom Buy Setup,” is something that you could implement into your trading.
A well-managed trading plan will prepare you for anything the market can throw at you.
Jayanthi Gopalakrishnan, Editor