MAKING YOUR PLAN WORK

More than just having a plan to trade with, you have to know that it works
and how to make it work. A plan is not worth anything if you do not know
how to use it or you simply do not follow it. You should never assume your
plan is great either. Some people have a trading plan that they use all the
time but never make any money with. Well, maybe this plan just outright
sucks and needs revamping until it makes money or needs to be forgotten
and a new one made. Following are some steps you can take to ensure that
your plan works.

Constant Reviewing

Part of your trading plan should be how and when you will review your
trades, game plan, and performance. It doesn’t need to be a written journal
(though I recommend it), but you should have a method of monitoring
positions as well as going over trades to figure out what you did right or
wrong. I like to start with open positions keeping focused on whether the
trade is still within the parameters of which it was originally made. If it
is not, or the reasons the trade was made have changed, you may have to
watch the position more closely or get out. Reviewing is an ongoing event
that will make you a better trader. How often you review depends on the
time frame you trade. A long-term trader may only need to look once a day
or week, while a scalper has to be doing it nonstop.

Some Things that Should Be Reviewed on Open Trades


Has it reached the target area?
Is it close to the target area and should it be watched more closely?
Should you add to it or cut back?
Is it simply not working as planned?

Is your money better spent elsewhere?
Should a trade be closed now or held longer?
Is it approaching a stop level?
Did you ignore stop levels?
Has volatility changed?

After you have reviewed the open trades, go over your losers. I like to
review losing trades that I exited correctly with a small loss. To me these
are the most important trades of all and it is a behavior I want to reinforce.
I am more proud of getting out of something with a small loss that would
have turned out to be a huge loss, than I am about having a winning trade. I
consider these to be good trades because I did the right thing. I’ll try to remember
what I saw to make me get out quickly and if I see that setup again,
I hope to act correctly again. Having had a weakness for letting losers get
too big, I like to see I’ve improved in this area. If I let a trade get really bad,
I try to understand why I did so, so I don’t do it again. Next I go on to ones
that I let get away or just acted stupidly on, regardless of whether I made
money or not. I’ll try not to repeat the same mistake in the future, (easier
written than done). The last thing I review is my winning trades, and again,
I’ll try to learn from them. This whole process really doesn’t take long to
do at all, just a few minutes after the close and it is worth much more than
the effort one puts into it. Those who never review their trades will never
learn what they do right and wrong, so don’t ignore this simple homework.
Don’t just review the trades but constantly check the plan itself for
validity. You may be losing money and the reason may be that your game
or trading plan is faulty so keep making sure that it is sound. You also want
to review to see if you followed your plan. There is nothing worse than on
paper having planned out a great trade, the market did exactly what you
thought it would, and yet you screwed it up and lost money. You need to
follow your plans if you want to succeed; if you can’t, then trading is not
going to make you rich.

Discipline

Discipline is not actually part of a game plan. But in order to succeed you
better have it, as it is the glue that makes it everything come together. First
of all, you need the discipline to make a trading and game plan and more important
is that you need the discipline to stick to your plan. Once you start
deviating from a plan, it’s easy to start losing and making emotional trading
decisions. You’ll start making trades you shouldn’t, you’ll overtrade, you’ll
risk too much, hold too long, and overall make poor trades.
It is easy to lose discipline whether you are on a winning or losing
streak. When winning, you may think you are better than the market and don’t have to follow a plan. When losing, you may try anything in desperation.
Both cases are asking for disaster. You really should never allow
losses to change your trading plan. If you’ve had a few losses, continue
following your plan (as long as you know it’s sound). Don’t change your
trading style, become more aggressive, or stubborn. You need to understand
that a loss is just a cost of doing business, ignore it and move on to
the next opportunity. The worst thing that you can do is to start trading
heavier to make back losses. If you are continuously losing, stop trading
until you’ve examined your trading plan, as it may be the cause. On the
other hand, don’t lose discipline and ignore your trading/game plan after
a winning streak. Many traders get too cocky after a good streak thinking
they are invincible and will make carelessly thought out trades with too
much size, then one or two losses can quickly wipe that smirk off their
faces. If you have been trading well it might just be the plan that got you
there; don’t ignore it.
One last thing I wanted to mention is that similar to discipline, staying
focused is crucial to making the trading and game plans work. You
can have a great trading plan, but if your mind is scattered throughout
the day, you will not be able to carry out your game plan. If you are busy
changing diapers, writing a book, planning a 700-person New Year’s Eve
party, opening up a bar/restaurant, remodeling your apartment, or accidentally
stumbling upon the abundance of free porn on the Internet for
three hours a day, your trading will suffer. If you don’t have the proper
time to dedicate to the market, you will need to change your trading and
game plans to trade less and hold positions longer or take a break from
trading as I had to at several times in the year and a half it took to write
this book.
I actually finished writing the book last week, and I’m editing it and
piecing it together now. It did take a while to write this book, but mostly
because I didn’t do much on it for about a year of that time, as I was too
busy with other aspects of my life. As I’ve become busier especially while
writing, I had to cut back on trading and have pretty much stopped daytrading.
As I did this I had to revamp my trading plans to accommodate
my new style, and that meant trading longer term. Becoming a stay-athome
father to a six–month-old and a two-year-old along with opening a
bar/restaurant doesn’t give you much time to concentrate on day-trading,
though it’s much more rewarding (the being a stay-at-home dad part at
least). Now, 18 months later, one kid is in preschool and the other is taking
classes and, as you’ll discover later, there is now someone home to watch
them, and the bar is up and running, and the book is pretty much done.
So I do plan to step up my trading in the next month as soon as the final
touches on the book are complete. But first I will make sure I have the
proper trading and game plan.