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Developing A Trading Plan - Pt 4
Testing a trading Plan Before they begin in the market, some traders find it helpful to 'paper trade' the market for a while. This involves taking 'hypothetical' positions in the market and then monitoring these to see what the outcome will be. Before doing any physical futures trading at all, the first move is to start by paper trading. A trading plan must be able to be measured. "I'll risk no more than 2% of my capital on any given trade". It can't say "I won't use too much of my equity for margin." Traders whose systems are more technical in nature will 'back test' their system against historical market data to determine the success of the system in that particular market. A trading system can be as simple as a few rules or as complex as a Black box technical analysis package. The key is that the system matches your personal trading style.
You can either create a system from scratch or buy a readymade package. Either way it is advisable to test the system with dummy trades before doing the real thing. Some experts recommend 10 years of back testing with historical data (black box systems) where as others recommend a shorter time span for the testing of a simpler system. It is very important to perform your own testing on any 'off the shelf' systems, and not rely purely on the seller's recommendations. While all of these techniques are beneficial, prospective traders need to be aware that simulated trading - no matter what its form, does have its pitfalls. Experienced traders will often say that there is no substitute for having real money in the market. Depending upon traders own discipline, the way they react in this circumstance could be very different compared to when the trade was purely hypothetical. In addition, while a market's past performance can provide some general clues as to its price behavior, there is no guarantee that this will be repeated in the future. Individuality Trading plans are individualistic, based on such factors as personal experience, education, risk capital and tolerance toward risk. For this reason, trading plans may differ greatly from one trader to another.
A trading plan may work better with some people than others. Consequently, you must develop a trading plan that works best for you. Among other things, this requires patience, rigid adherence to the rules that you establish, meticulous record keeping of trading performance (which provides valuable feedback) and an open mind to try new methods. There are no guarantees of profitability in the world of futures investing, but the discipline of a trading plan goes a long way toward making you a successful futures trader. Now let's look at some of the SAMPLE TRADING PLAN (GENERAL SUMMARY OF MARKET ACTION) Trading Philosophy / Trading Psychology: I believe that Financial Markets are 100% psychology driven.Price patterns are a reflection of the collective psychology of a large number of traders.Trading psychology also a major factor in my own trading. It is identified as my trading state. Fear and Greed are powerful enemies to profitable trading and I can overcome this by training my subconscious mind to be focused on following a defined trading plan versus focusing on wins and losses.I am a disciplined trader committed to trading only for profit strictly adhering too my trading rules, plan and standard operating procedures.
My style of trading is aggressive with my preference to trade directional, and pattern set ups. I will trade full time as a day trader and also seek other trading opportunities especially dealing with Options.I will not have a bias as to where the market may or may not head, I will react to the price, patterns and my tools as they present themselves applying my trading rules.I trade what I see… Not what I think!I understand that I cannot control the market, I can control only myself. My trading state and mindset is the key to the success of trading. I must be rested, fit, healthy and mentally alert. Accepting the stress of trading by keeping focused, calm, disciplined and not distracted is essential for being a professional trader.Losses are acceptable, not desirable but I can minimize them with compliance to the rules, especially avoiding impulse trades and never being in a trade without a plan or a stop.Trading is a business and I am here for the profit. Golden Trading Rules: Check for Stops and targets resting in the Market then update or remove them.
Look left for previous structure.Always Set a Stop Loss. Always!Maintain Discipline.Avoid impulse trading. Trade with a plan and stand by the rules.Identify, Predict, Decide and Execute (IPDE).Do not enter a market within 15 minutes after a news event.Get S.
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