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Don’t Trade

If you don’t have a written plan. The goal of this post is to share personal mistakes in my early trading to hopefully encourage others down a different path.

People tend to hate those kind of statements because it makes us feel inadequate and that we’re doing something wrong. However, I can unequivocally say, transitioning from trading off the dome to writing a plan is massive and probably one of the largest changes to my trading success.

I started trading in high school, so I scoffed at the idea of having to write things out. I figured I could just look at my logs, adjust based on what I saw, and do just fine. Looking back 16 years, I want to slap my cocky naive self.

Options are incredibly complex products. And millions of people try their hand at it and we know the majority fail. The arrogance I had, thinking that as late teen, early 20 year old I would just be able to successfully deploy without a written plan or log is literally wild.

If the idea sounds like work and annoying to do - you’re spot fucking on. AS IT SHOULD BE. Just because the barrier to enter into trading is SO LOW, don’t allow that to lull you into a false sense of security.

The real benefit of a trading plan isn’t using the finished plan as a reference, although it is a good one. The benefit comes from the rigor put into creating one and the exercise itself. Similar to when I was giving a 5 paragraph order as a Marine Officer - I very rarely would crack open my plan to remind myself what to do in a scenario. I didn’t need to because I knew it cold from building and delivering the plan. Same exact goes for trading.

If you have a plan or pieces of one and want some feedback, post it here and let’s have a constructive dialogue about them. If you don’t have one, below is a simple outline to get you started.

1. Orientation. What is the goal of your trading? This should be quantified. We should also force ourself to answer: Is my goal realistic? WHY do I think it is? How can I track whether it is or not?

2. Portfolio deployment. How do you intend to use your portfolio, manage risk, assess markets, etc.

3. Tools. This can be everything from notes, TA/FA tools, chart setups, market functions, etc.

4. Strategy Outlines. This breaks the strategy down into a full lifecycle, in depth. What’s the idea of the strat? How does it make money? How does it lose? How do you manage PnL? How does that affect expectancy? What deltas do you use? Why? How do you scale?

5. Tracking. This is where we track and quantify our ideas, questions, and assumptions. This enables unbiased analysis and optimization.

6. Audits. I’m a firm believer in having people I respect look over my work to poke holes, identify gaps, confirm rigor.

Yes it’s work. Yes it’s worth it. This is how I’ve maintained a 20% CAGR for over 15 years.

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