Testing a trading Plan
Before they begin in the market, some traders find it helpful to ‘paper trade’ the market for a while. This involves taking ‘hypothetical’ positions in the market and then monitoring these to see what the outcome will be.
Before doing any physical futures trading at all, the first move is to start by paper trading. A trading plan must be able to be measured. E.g. “I’ll risk no more than 2% of my capital on any given trade”. It can’t say “I won’t use too much of my equity for margin.”
Traders whose systems are more technical in nature will ‘back test’ their system against historical market data to determine the success of the system in that particular market. A trading system can be as simple as a few rules or as complex as a Black box technical analysis package. The key is that the system matches your personal trading style. You can either create a system from scratch or buy a readymade package. Either way it is advisable to test the system with dummy trades before doing the real thing. Some experts recommend 10 years of back testing with historical data (black box systems) where as others recommend a shorter time span for the testing of a simpler system. It is very important to perform your own testing on any ‘off the shelf’ systems, and not rely purely on the seller’s recommendations.
While all of these techniques are beneficial, prospective traders need to be aware that simulated trading – no matter what its form, does have its pitfalls.
Experienced traders will often say that there is no substitute for having real money in the market. Depending upon traders own discipline, the way they react in this circumstance could be very different compared to when the trade was purely hypothetical. In addition, while a market’s past performance can provide some general clues as to its price behavior, there is no guarantee that this will be repeated in the future.
Individuality
Trading plans are individualistic, based on such factors as personal experience, education, risk capital and tolerance toward risk. For this reason, trading plans may differ greatly from one trader to another. A trading plan may work better with some people than others. Consequently, you must develop a trading plan that works best for you. Among other things, this requires patience, rigid adherence to the rules that you establish, meticulous record keeping of trading performance (which provides valuable feedback) and an open mind to try new methods. There are no guarantees of profitability in the world of futures investing, but the discipline of a trading plan goes a long way toward making you a successful futures trader.
Now let’s look at some of the
SAMPLE TRADING PLAN (GENERAL SUMMARY OF MARKET ACTION)
Trading Philosophy / Trading Psychology:
I believe that Financial Markets are 100% psychology driven.Price patterns are a reflection of the collective psychology of a large number of traders.Trading psychology also a major factor in my own trading. It is identified as my trading state. Fear and Greed are powerful enemies to profitable trading and I can overcome this by training my subconscious mind to be focused on following a defined trading plan versus focusing on wins and losses.I am a disciplined trader committed to trading only for profit strictly adhering too my trading rules, plan and standard operating procedures.My style of trading is aggressive with my preference to trade directional, and pattern set ups. I will trade full time as a day trader and also seek other trading opportunities especially dealing with Options.I will not have a bias as to where the market may or may not head, I will react to the price, patterns and my tools as they present themselves applying my trading rules.I trade what I see… Not what I think!I understand that I cannot control the market, I can control only myself. My trading state and mindset is the key to the success of trading. I must be rested, fit, healthy and mentally alert. Accepting the stress of trading by keeping focused, calm, disciplined and not distracted is essential for being a professional trader.Losses are acceptable, not desirable but I can minimize them with compliance to the rules, especially avoiding impulse trades and never being in a trade without a plan or a stop.Trading is a business and I am here for the profit.
Golden Trading Rules:
Check for Stops and targets resting in the Market then update or remove them.Look left for previous structure.Always Set a Stop Loss. Always!Maintain Discipline.Avoid impulse trading. Trade with a plan and stand by the rules.Identify, Predict, Decide and Execute (IPDE).Do not enter a market within 15 minutes after a news event.Get S.E.T. (Stop, Entry, Targets) before every trade. (Know where and how to Exit…)If I lose my ISP then call my Broker immediately and go flat, then work on the technical challenges to get back online.Keep it simple.
Money Management, Risk Reward and Financial Goals:
I will trade 4 contracts as a unit maximum for the S&P e-mini.I will trade 3 contracts as a unit maximum in the Russell e-mini.For every $5K that I add to my account I can add a contract to a unit. If I reduce my account by $2K then I will reduce the contract size.Commissions, fees, charting services, continuing education and other business related costs are considered essential to trading.Risk to Reward is preferred a 2 to 1 ratio, but waiting for the set up and trading the rules is paramount and given the opportunity this standard is a guideline. My goal is to successfully net 9 combined points per week in the market.My desire is to train for the FOREX so that I can diversify looking for the best opportunities as I see them.
Daily Routine
I will only trade on days when I am well rested, relaxed and not mentally distracted by matters that will divert my focus. I will spend at least 15 minutes relaxing to music or a form of meditation after a good nights rest before trading.Conduct a Pre-Market Analysis myself, perform a top-down review of the major markets and develop a plan of the day. The trading day is from 9:30 a.m. (EST) to 4:15 p.m. divided into a morning session, lunch and afternoon session.I do not trade for the first hour on Mondays.I do not enter any new trades the last half an hour of the market hours (1545 – 1615 EST).After I have met my goal or the market is closed I will log my journal and then spend quality time with my family.At some point before the end of the day I will revisit the S&P trading day and back test my plan and system.
Pre-Market Analysis
Understanding that 70% of the volatility occurs during the first 2
By: Jason Brumbalow
Posts Tagged ‘Discipline’
Developing A Trading Plan – Pt 4
October 16th, 2009Golf Business Plan for 2009. Got Plans?
September 29th, 2009As we enter the final two months of 2008, your Club should be well on its way if not finished with its Business Plan for 2009. Yet, I find that in many cases Clubs have not yet even started the process. When I ask why the plan hasn’t begun, I hear a litany of amusing responses, well actually unfounded excuses. A sampling of the feedback includes:
We can’t start a new budget when we don’t have final numbers for 2008. We haven’t decided what we are going to do with our operation in the off season. We’re too busy. We’re afraid of what it might look like. We tried that before and it did not help us. It takes too much time and we don’t ever use it for anything.
Any of this strike a chord? Be honest now!
The reality is that many Clubs either don’t have the skills, commitment, discipline, or desire to put together a plan. Planning is work! Hard work! But like any other hard work well done, it provides great benefits.
A forward thinking approach with a financial plan in place for the entire year and then updated on a quarterly basis with a forecast with a focus on creating the future is a paradigm that any successful business utilizes. Yet, I find that in most cases Clubs do little more than take a perfunctory look at the numbers from the prior month usually about 15 to 20 days if not more after the month has ended.
I have seen amazing transformations in the actions Clubs take when the financial realities of their business are made known to them in black and white terms with a well thought out financial plan and a forecast of the future business. I have implemented forecasting where it previously was not utilized and immediately new plans were developed for better expense controls and the marketing ideas became number one priorities instead of just “when I get to it” afterthoughts.
A focus on creating the future through a thorough, well crafted business plan is what separates great operators from marginal and poor performers. It the difference between swimming toward a destination and just drifting with the current. It reminds me of a passage from Alice in Wonderland. When Alice encounters a Cat during her travels, she asks the cat for advice on the road she should take. The Cat responds by asking Alice where she wants to go. Alice responds that she really does not know. The Cat responds by telling Alice that if she doesn’t know where she wants to go, then the road she takes really doesn’t matter. Do you know where you want to go in 2009?
You must have goals. But putting together a financial is more than just crunching numbers. There is much groundwork that must be completed in order to get the proper foundation to plan. A solid financial plan is the final results of a thorough Business Planning process which includes:
Components of a thorough Business Plan include:
1. SFSWOT Analysis
This is analysis of each Club department’s and the Club’s overall
Successes Failures Strengths Weaknesses Threats Opportunities
It provides a critical self assessment of your Club and provides a great foundation for goal setting for both qualitative and quantitative improvements in the upcoming year.
2. Competitive Analysis
Who is your competition? What do they charge? What is your unique selling advantage?
3. Membership Planning
What are your Club trends for both membership enrollment and attrition by category? What real growth do you want to plan for in 2009? What has been the trend with upgrades and downgrades? What are you doing with Initiation Fees? Do you have financing in place? How will you handle your wait list to join? To resign?
4. Pricing Plan
What price increase will you take this year and when? Will dues increase? If so, will that cause attrition? How will you price your cart and guest fees? What about F&B. Remember, except for a very few elite Clubs in the Country, cost does matter.
5. Payroll Planning
What payroll increases are you authorizing for the Club’s employees in 2009? Are the increases performance based or just “no thought” across the board increases? Can your Club afford to give increases? Do you have incentive based compensation plans in place or do you just pay for showing up regardless of the performance?
6. Expense Planning
What expense increases are you anticipating? Have you reviewed each department on a line item basis to determine if the expenses may have significant fluctuations either up or down? Items that can change significantly include general liability insurance, property taxes, utilities, fertilizer, chemicals, and fuel. Have you reviewed these thoroughly to ensure you have an accurate view of the expense side of the financial plan?
7. Marketing Plan
Do have a written quarterly game plan for driving the revenue sources that are important to your Club? Are specific timelines and people assigned to carry out the plans? Have you budgeted the needed dollars for marketing to ensure you will be able to achieve the results you need? Check out our industry best website solution for Private Clubs at www.privateclubcommander.com
8. Retention Planning
Do you have a comprehensive calendar of events that appeal to all segments of your membership to keep them using the Club and providing needed revenues. Is your calendar planned ahead at least 3 months at all times? Or are you trying to come up with things at the last minute because the newsletter copy is due?
9. Qualitative Improvement Planning
Do you have a written quarterly plan in ever department for qualitative improvement? Specifically, are you challenging all of your Club departments to implement 2 or 3 initiatives that either create a better member experience, provide for improved employee efficiency, introduce a new product or service, or produce a better financial result?
10. Capital Planning
Do you have a written capital replacement plan in place for 2009? Replacing depreciated assets on an annual basis is another component of a successful business. Do you have the necessary cash to replace what is needed in 2009? Are you going to finance or lease needed equipment? Have you done the analysis? Is your plan at least looking ahead 5 years?
By: Bob Devitz
