Post questions answers for anything related to trading
27/02/2010 05:36:53
Tom Leeson
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Posts: 661
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A Simple Trading Plan by Raymond Deux,
President and CEO of NinjaTrader, LLC
Early in my trading career I learned that having a trading plan was
vital if one wanted to be a successful trader. Having a trading plan does
not mean that you will be successful but it does mean that you can hold
yourself accountable for your actions. Primary components of my trading
plan included:
Key trade set ups
Pre-defined trade management rules
Key Trade Set Ups
There are many different trade set ups that you will come to explore
or develop on your own but what is important is that you limit the
amount of trade set ups to a select few that you intimately understand and
can execute without letting emotions negatively influence your actions. As
part of the learning process, I tried many different trade set ups, indicators,
and markets. It wasnt until I focused on trading a select few set ups
that I began to make decisions with more clarity and confidence. As a new
trader, your plan should only include one trade set up. Learn this well, and
then add another one.
Pre-defined Trade Management Rules
It is critically important to have defined rules that dictate when and
where you take profits or cut your losses. These rules and conditions
form the basis for your trade management and ensure that you are able to
control your emotions, which then promotes discipline and consistency
in your trading. When trading intraday, having a trading platform that can
execute these trade management strategies can give you a dramatic advantage
and this is what motivated me to conceive the NinjaTrader trading
application. Once I have identified a trade set up and have entered the
market, NinjaTrader takes over and semi-automates my trade strategy by
submitting my stop loss and profit target orders based on my pre-defined
parameters.
I can now go into a fight with a sharp knife!
A trading plan provides me with a well defined plan of action and
more importantly, a plan of no action when trading the markets. From
my experience, when you act outside of your trading plan, you surely pay
for it many times over. My key trade set ups tell me what to look for and
my trade management rules manage my trades. I only focus on what is in
my plan and I do it with a patient demeanor.
Sample Trading Plan 283
One of my Favorite Trade Set Ups
One of my favorite trade set ups is a Bull Flag which is akin to a flag
on a pole. It is an area of price consolidation right after an advance that
implies buyers are taking a break before resuming their advance. Through
my experience, I have found that the odds of the Bull Flag chart pattern
following through and continuing an advance significantly increases if the
pattern forms after the 1st measurable change in trend as detected by a
downtrend line break. I only use the raw chart bars for this set up and no
supplementary indicators. The set up includes the rules for trade entry and
trade management directly from my trading plan.
The trade entry set up as show in Figure 1:
1. A clear downtrend
2. A trend line break to the upside
3. A bull flag continuation pattern
4. Go long above the high of the bar that breaks the flag to the
upside
This set up is valid in any market on any time frame. Although this
set up discussed in the long direction, it works equally well or better in
the short direction.
Setting up the trade management rules in NinjaTrader as show in
Figure 2 and Figure 3:
1. Set up a stop loss of 8 ticks
2. Set up a profit target of 24 ticks
3. *Set up a multi-step automatic trailing stop
This pre-defined trade management set up provides me with a 1:3 risk
to reward ratio.
*I like protect profits as the trade moves into profitable territory. The Ninja-
Trader automatic trailing stop allows me to set an initial liberal trail stop that only
activates at a predefined level of profit.
Summary
Everyones trading plan will be different since we all have different
tolerances for risk and psychological states. Whats important is that you
have one, you manage it, and you work it and hold yourself accountable to it.
edited by tom on 27/02/2010
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MicroTrends tom
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