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Trading Plans Are a Must

This post is about an important change in my trading methodology and hopefully to give others some ideas to enhance theirs.

One of the absolute pivotal moments of my trading career is when a mentor of mine refused to discuss trading with me until I created a trading plan. At the time, it seemed like an annoyance - I was going to figure it out as I went and simply pay attention. Except that’s not how it worked at all.

I had incredibly inconsistent deployment. Sometimes I might select a .40 delta, sometimes .35. Sometimes it was based on TA, sometimes it’s because something “felt” too close or far from the money. This obviously led to haphazard strategy implementation, half hearted tracking, and overall sub par performance.

Creating a written trading plan IS a headache. It’s like writing a thesis that is completely autonomous and with little guidance. However, it is necessary.

My trading plan has evolved greatly over the years. It’s a living document that I continually update. The largest benefit however, is the initial thought exercise in creating one.

If you want to take trading seriously, create a trading plan. Some ideas for a starter one below:

1. Goals. List what you’re trying to accomplish. Begin with the end in mind.

2. Portfolio management. How do you intend to use your portfolio. How much money is used and when? How do you control risk? I like to split my portfolio into core and speculative allocations.

3. Scanning. How do you review the markets? Creating a relationship with the market is second to done in developing pattern recognition which serves us well over time.

4. Strategy outlines. This is where we dive into detail on each strategy we intend to deploy. Within these, I include: Exec Summary, strat structure, set up, scanning, management, and tracking/logging.

There are innumerable variables in the market, we cannot control them. We can however control ourselves and if we’re to stand a chance, need to codify our approach. Random trading gets random results.

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