THE TRADING PLAN AND THE GAME PLAN

What this article is all about is how to reduce the gambling aspect of trading.
Many people perceive trading as nothing more than a gamble. And to
many traders it is. But there are many traders, who year after year and
month after month make money trading. They have learned how to separate
gambling from trading and their results show that it is possible to
do. I believe anyone can do it as well if they are willing to do the work
it takes. For me, that hard work is developing and trading with a plan.
There is probably no greater tool you can have then a proper, well thought
out plan.
When I talk about plans I refer to two types, the trading plan and the
game plan. Though they work together, they are two different creatures
that rely on each other to work. A good trading plan with no game plan
won’t work. That’s like Pedro having the best fastball and curveball in
world but not knowing when to throw them or who to throw them at. On
the other hand, without a trading plan, a game plan is not nearly as strong.
It’s like Pedro deciding he needs to throw a knuckleball in a tough situation,
but realizing too late he never learned how to throw one. But once he
gets both of these plans working together, he can win a lot of games and
be the superb pitcher he is.
This holds for traders as well. The main reasons for having these plans
are to ensure you make smart trading decisions all the time, to help you
exit a trade and to make sure you know what you are risking and how
much you stand to gain prior to making a trade. Without the aide of plans,
you are starting behind the eight ball. Your chances of succeeding are so
much smaller if you are trading haphazardly, as opposed to when you have a proper plan to guide you. Throughout this book you will see just how
important a trading and game plan will be in making you a better trader.
I’ve traded with and without a trading and game plan, and I know for sure,
my results are exponentially better when I have the guidance of a proper
plan behind me.
If you have read my first book, High Probability Trading, you will
know that I stress that having a plan is a very important ingredient in
becoming a top trader. In that articles , I had a chapter devoted to trading
and game plans. And it is from there that I got the idea for this
articles.

The Trading Plan
The trading plan comes first, and it is the board based trading strategy each
trader should have. It should reflect a trader’s trading style, trading strategies,
and risk aversion. A trading plan doesn’t have to have a system set
in stone, but it can have known-to-work strategies like “buy dips in an uptrend
and don’t risk more then 5 percent of equity on any given trade.” A
trading plan won’t change much from day to day, as it consists of a trader’s
systems and money management plans. It does need to be reviewed on a
regular basis, but overall it usually stays the same. Though this book is not
about how to make a trading plan, I’ll expand on the basics of doing so in
the next chapter.

The Game Plan
Once a trading plan is in place, a trader needs a plan to be able to attack the
markets on a day-to-day basis. This will be the game plan and it will change
constantly as it reflects new market conditions. Markets have something
new to offer all the time and a well-prepared trader can take advantage of
this by preparing how to react in advance. This may include moving stops,
knowing what you will do after an unemployment number is released, or
waiting for a market to reach a trend line before getting in. The game plan
will include finding trades, timing, knowing how much to trade, where to
exit, and how to adjust risk. You should reevaluate your positions on a
regular basis and come up with new scenarios so that you can alter your
game plan as the market changes. This articles will focus more than anything
on how to use a game plan to your advantage. And if you learn how
to make and use one, you will become a trader who leaves very little to
gambling.