My Trading Plan

So I realize this is something I should have done long ago, but better late than never.  These rules have been in my head, but writing them down is obviously a good idea.  So without further adieu, here is my trading plan/rules.

1.  Only trade stocks that are over $10.

2.  Do not trade stocks with less than 1M volume.

3.  Never enter a trade unless sound technical analysis has been performed and the trade is confirmed.  I.e. Do not trade on a whim or on emotions!

4.  Do not chase trades I.e. if we are getting close to a support level and my entry was short, don’t take a trade to eek out the last few cents.

5.  Always buy contracts at least 2 months in advance.

6.  Never have open positions without a solid, pre-determined stop.

7. Move the stop up to lock in gains over 20% if the target has not yet been reached.

8.  If the target is breached, do not necessarily close the position.  Move the stop to the target and let the gains run.

9.  NEVER move a stop to stay in a losing trade.

10.  Always have at least a 2:1 risk/reward ratio.

11.  Do not dwell on losses in a negative way.  Study then, know what you did wrong, learn from them and do better next time.

 

This is it for now.  In addition to updating this as I learn and experience more, I am planning on making a post that describes the steps I follow to analyze and decide on a trade.

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10 thoughts on “My Trading Plan

  1. Nice plan. I am new as well to trading and have somewhat of a plan. Would love to chat about it one day with someone else who is going through this journey. I don’t have any formal training. I post most everything I do on Stocktwits…big thing is I don’t use stops, which, I know is completely backwards with regards to what everyone says. Anyway, I will follow all your technical analysis to try and learn your methods. Thanks – Jose

    • Hi Jose,

      I’ve found that stocktwits is a great interactive community to get great trader’s perspective on stocks and the market. Some great people to follow are MichaelGLamothe, JBoorman, TradeTheMBI, LearnStocks101, and yobronomics. These guys are also on twitter. Lastly, I took some courses at tradesmartu.com. It really helped me understand technical analysis and develop a trading plan. You can take one of their fundamentals courses for free and then decide if you want to buy more.

      Regarding stops, I’m sure you’ve heard it before but ALWAYS use stops. You typically want stops above or below a previous day’s candle (depending on if you are long or short) or below key support and resistance lines. Writing this blog has really helped me think out why I am setting up a trade and sometimes I scrap trades once I’ve actually reasoned them through.

      Thanks for the compliments and feel free to ask any questions that come up and best of luck!

      -Mark

  2. My rationale for not using stops is simply that I have finally become profitable after trying for about 2 years. I only trade options…I would definitely use stops if I were trading stocks. My logic is that I buy an option knowing that I could lose 100% of my premium, so I will only buy premium worth about 2% of my overall capital. Currently I am only buying 1 contract at a time and I am not using a whole bunch of money until I am sure I can make the system work. I do have an initial plan, using flags and pennants, and a 30 to 40% profit target…but if that initial plan fails then it becomes a hope and pray trade. I make sure to buy enough time with each option to allow the trade to come back to my target, if it so chooses. It sounds crazy but for now it is working for me and it makes it easy to manage the over 50 options I have in play. Now, granted I am holding positions in options that have lost quite a bit of their value, but as a whole it seems to be working. I have begun paper trading a separate plan which includes stops and in which I do not buy too much time on the option, so I would rather go with an initial plan….I don’t like hope and pray. However, in the past, my biggest tormentor was getting out of positions prematurely, only to see the stock go my way the next day. Very frustrating.

    Sorry for the long response…I do appreciate chatting with other people about trading, as it can be quite lonely sometimes in the trading world. Thanks again Mark.

    Jose

    • Hoping and praying certainly isn’t a good way to trade. In terms of your getting out of trades prematurely, I have done the same thing. However, with my stops I place them based on the underlying stock (I trade options as well). So for instance let’s say I want to buy calls when a stock is at $20. Whatever the cost, I can set up a conditional order so that I will not sell my options unless the price of the underlying stock close below a certain price (let’s say $19 in this case). At any rate, I’m glad your finding a method that works. Just make sure you keep an eye on your trades in case of market volatility.

      No worries on the long response. Anything you’d like to talk about in the stocks world, feel free.

      -Mark

  3. I am doing the same thing…my system is a stock strategy I just buy puts and calls. I have a good friend who uses all the funky strategies with options (butterflies, condors, strangles, etc.), who has told me the same thing about hoping and praying. He has been trading a long time and still has probably just broke even over the years.

    I was reading some of your posts and I really appreciate the honesty and candor you have regarding your real account…very refreshing and educational.

    The only thing I look at once I find a stock I like, is the ask bid spread on the option. I saw WYNN was a trade you were looking at…I liked that one as well, but didn’t put an order in for the option b/c the ask bid was too far apart for me.

    Also, when I put in orders for options I don’t get in until the stock goes in my favor for a bit, so I often have a bunch of orders but only get filled on a few.

    Rambling a bit…again I greatly appreciate what you have on your blog…Thanks

    Jose

  4. It sounds like you have full time job, which is the case with me. However, I teach, so I am off for the summers. I have to try and develop a sysytem that allows me the freedom to not be in front of the screen. Have a great 4th.

    Jose

    • Jose,

      Yes, unfortunately, I do have a full-time job. I would have to make trading my profession one day, but that day is a long ways away. Time will tell if I get there or not, but for now I am really enjoying myself. I hope to start turning profits sooner rather than later. Best of luck developing your system. If you see anything that you think I am doing wrong, please let me know. I am always willing to learn and understand/fix my mistakes. Happy 4th to you as well!

      -Mark

  5. I agree with you about enjoying the Journey. I love this stuff and can talk about it all day, much to my wife’s and students dismay. Bare with me and I will explain my journey so far…
    I have not had the best of luck with indicators up to this point, probably b/c I was using them incorrectly. I continually got stopped out of positions way too soon. When a friend of mine turned me on to options, I was hooked. You may have seen it, but there is a great free website, http://www.swing-trading-options.com, that helped me immensely. However, my system is still a stock system, so I really don’t want to start using all those complicated, multi-legged strategies (I truly believe in the simpler the better). Having no luck with indicators and down to my last $1000 (having lost about $4000), I decided to try not using stops because personally that was causing me the most anguish.

    I found a candlestick pattern that I was having success with, if I gave the stock enough time (that was key for me), but I was not willing to do this buying the stock. When I learned that all you could lose on an option play was the premium, I thought, well maybe I could just buy $50 premiums and give them enough time so that they would come back in my favor if I lost them initially. The pattern I began using was a 3 day bar pattern (inside days – today hi/lo inside yesterday hi/lo inside hi/lo two days ago, sort of nesting pattern), I just had to figure out direction. I had great success early on; however, I started taking a few losses, so decided to switch to flag patterns (I know should never change system while trading)…still doing ok but not having the same initial great results.

    I think I am going to go back to that 3 day pattern looking forward b/c my backtesting (do you backtest?) has shown me that I would be doing very well had I stuck to my initial pattern.

    Also, I had been using fibonacci extension levels for my targets, with great success, but have since moved to shooting for a % profit between 30 and 40%. When I was using Fib lines some of my profits were really good 100 to 200%.

    So right now, what I do in the evening is scan for stocks (using stockfetcher, great backtesting program as well), go to thinkorswim, make sure the option has a nice bid/ask spread, and set my entries for tomorrow. If I get filled, I then watch the option until it gets to the target I set from the beginning.

    If you have an EMAIL, I would love to send you an excel sheet I have of all my picks since Dec. 2012, so that I can show you my picks and how I have done, good and bad.

    May I ask, how much time do you usually buy with your options? Also, have you had a lot of response to your blog? I have tried blogging stock market analysis with friends, but didn’t have much input.

    I will follow your blog with the hope of learning some more technical analysis to incorporate with my simple trading as you have much more expertise than I have. I will try to offer some thoughts, but as you said take that with a grain of salt as I am no expert. Thanks again for the blog and please don’t give up the journey as what I am reading sounds a lot like what I went through initially.

    All the being said about no stops, I have thought about entertaining stops at like 50%. Sorry, all over the place with my rambling

    Jose

    • Hey Jose,

      Thanks for the message. I definitely have a lot to respond to, but I’m busy with the holiday. I’ll get back to you some time this weekend. Take care!

      -Mark

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