Draft Trade Plan

This is a draft of my trading plan. It’s not complete and is more of an outline than a finished document, but it gives you an idea of my thinking to this point. One trade setup is detailed–buying/selling the pivot point. If price does not come within my parameters, I’ll sit on my hands at this time. I would add other setups to the mix after being able to show a profit with this one. This trading strategy is designed to be used during range-bound market days, and the parameters below define the structure that I will operate in. Future setups will be intended to address other market environments.

NOTE: Trade plan may only be changed outside of market hours! Trade plan will be followed when markets are open, or no trade.

Vital Plan Elements

1. What Trading Vehicles:
-ES, NQ

2. Position Timeframes:
-Intraday only. No overnight holds.
-Chart period: trades will be taken on a 5 min chart for ES and NQ.

3. Long Setup Description and Parameters:
PIVOT TRADES
-Above daily pivot level=long only
-No countertrend trades
-Entry setup: Long at pivot point plus 1 tick if volatility based trailing stop is long-biased and lies below the pivot.

4. Short Setup Description and Parameters
PIVOT TRADES
-Below daily pivot level=short only
-No countertrend trades
-Entry setup: Short at pivot point minus 1 tick if volatility based trailing stop is short-biased and lies above the pivot.

5. Stop Loss Parameters
-Use either fixed stop of 5 NQ or 2 ES points
-Or use the volatility based trailing stop
-Whichever is closer to market price.

6. Profit Target/Partial Exit Parameters
-Partial exit at TICK fade extreme (full exit if only 1 contract in position). Tick fade extreme is a bar where the TICK got beyond a threshold value of +/- 1000.
-Target is next pivot level (eg R1, S1)

7. Position Sizing Parameters–initial size, increase/decrease base size, add size parameters
-Base size: 1 contract
-Base size increase/decrease: when account crosses contract margin levels
-Add trade size: None currently. No adding to positions.

8. Overall Risk Parameters
-Two losses in a row = quit for day
-Down 2R for the day = quit for day

9. Valid trade entry days/times
-No entries between 12:00-1:00 ET (11:00-12:00 CT)
-No entries after 3:30 ET (2:30 CT)
-Flat before Fed/other big news announcements

There it is, a line in the sand. It’s imperfect and not optimal, but it’s something, which is better than the trading plan vapor-ware I have had up to now. Feel free to make suggestions or criticize it. If I can’t think of a good reason for why I wrote something, I probably wouldn’t want it in there anyway.

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17 Responses to “Draft Trade Plan”

  1. Eric Says:

    How did it go today?

  2. Prospectus Says:

    Well, there wasn’t a setup today yet in NQ or ES according to this plan, but I also wasn’t watching for one today, as I was busy with other things at the open. I also want to adjust the entry rules before I actually trade it. So I guess it’s not ready to go yet, but it’s a start.

  3. James T. Says:

    some books suggested that quitting after making bad trades is a bad idea while others suggest otherwise. what works better? is it based on psychology?

  4. Prospectus Says:

    It depends. If you are quitting because you don’t think your strategy matches the market environment, or you are protecting yourself from overtrading, then I think it’s wise. If you are just getting hit with a random rash of losses (which happens with any system) and are disciplined and calm, then you should keep swinging, as Richard says. Read his take here:

    http://www.movethemarkets.com/blog/2007/06/22/keys-to-success-keep-swinging/

  5. James T. Says:

    when strategies do not match the market environment? is it usually because the market is trendless? what causes strategies to fail?
    how about creating a strategy to counter these markets with different strategies and tightening profit and loss margin.
    thx for the great article btw =)

  6. Prospectus Says:

    You’re a great straight man! I’m working on articles for that very topic. Stay tuned.

  7. JC Says:

    nice trading plan! you should turn that into an autotrading system 😛

  8. Prospectus Says:

    JC:

    Once I get Ninja Trader up and running, I will (paper-trading only at first)

  9. RappidFyre Says:

    Hey Pro,

    Just a few thoughts on the topic…

    You have a good initial platform / base there in its mechanical form.

    Now what you need is a check / balance / tweak system for it. (After taking it for a few runs down the track)

    Aside from the obvious (a weekly / monthly or quarterly P&L) you need to develop a means in which you can verify the validity of the plan over its Beta testing stage. This way you can see precisely what needs to be adjusted, if the plan needs an implant or it needs to get scrapped.

    Everything “looks good” on paper, but paper doesn’t strike back like the markets do.

    This could mean the tweaking of an initial lot size / contract of the trade, it could be a stop adjustment, it could be when you should take a partial profit and it could be when you should be all out or flat on the trade.

    Of course we all should know that any plan, even the best ones, are going to get tweaked or even get a complete makeover over time. A plan is written for a specific time and mood of the market you’re writing it for.

    In retrospect, for one type of specific instrument / product I have three variations of that trading plan. The variables within those plans are slightly different, but relatively the same. I not only take into account how the markets are feeling that day, more importantly is how “I’m” feeling that day.

    My priority begins with how I feel on any given trading day. I have bits on psychology and mindset written into my plans as well as the mechanics of it all. After all… it’s a plan!

    I see my plans kind of like kick ass theme music or a great soundtrack to a awesome movie. They both have to work in tandem to create an optimal result or at least the beginning of one, but you only have the power over half of that equation when going head to head with the markets.

    Just as studies and strategies are tested, back-tested, and front-tested for results and probabilities a trading plan deserves the same attention.

    After all, if you wrote the plan to keep you out of trouble to the same extreme as you wrote it to keep you in a good place, it could prove to be the real lifeline to your trading account…

    Just a thought…

    Peace-

  10. Dan Robbins Says:

    Nice start, but 2 points on ES for a stop, is extremely tight. If you don’t want to lose more than $100, then futures may not be the right vehicle. You could use the ES for your signals, but execute on SPY or SH (or the leveraged ETF’s) instead so that you can reduce position size and increase your stop levels. A 2 point stop is going to get you stopped out a lot, so you would need some good winners to balance that out.

    Also, I’m not sure I understand your entry technique. You want to enter at the pivot +/- 1 tick, but I’m assuming you buying pullbacks to the pivot? I.e Price is 5 points above the pivot, comes down to 1 tick of the pivot and then you buy at that point?

    I’ve written to you before with some book suggestions. I highly suggest you read and re-read John Person’s Candlestick/Pivot Point book….

    Dan (blenderking)

  11. Prospectus Says:

    Thanks for the feedback, Dan. I can use a wider stop. How do you determine the appropriate amount on ES? I tend to want to make my stops too tight in general.

    I’m not happy with the entry technique myself. It’s something left over from a long time ago that I was looking at. In the past, I was an impulse trader, so just getting a plan written down is a big step for me. I consider this draft more of an example of the type of information I will need to define before I am ready to trade. I appreciate comments like I have gotten that make me rethink what I have in it, and how I should consider changing it. I especially appreciate the insights of successful traders. Rocket Scientist I may be, but I’m still a bumbling apprentice when it comes to trading.

    I’ll read the Person book, thanks for reminding me!

  12. Dogwood Says:

    Good start. Here are a few suggestions.

    1) Trade the 15-minute timeframe sted of the 5 minute timeframe. There is a lot of noise in 5 minutes and the whipsawing can be disturbing psychologically. A 15-minute chart slows everything down, calms the nerves, and allows you to focus on the bigger picture/larger moves.

    2) Pick one, ES or NQ, learn to trade it consistently and profitably, and then add the other instrument. The two contracts have very different personalities so I think it best to focus on one and only one in the beginning.

    3) Don’t rule out countertrend trades. Most trading occurs between S2 and R2, which makes those areas prime candidates for a countertrend trade. Wait for the 15-minute bar to print at or slightly past the pivot, then fade it.

    On a trend day, this type of trade can be good for five to 10 points, or it will pullback to S1 or R1 before continuing the trend. On other occasions, you bottom or top tick the move and can make enormous profits with very little risk. I have a sign over my desk that reads “Always Buy S2 & Always Sell R2”, statistically those levels hold up surprisingly well.

    Good luck.

  13. Prospectus Says:

    Thanks, Dogwood! Those are great suggestions. I think my final trading plan will have many of the same topics as this draft does, but the strategies and rules will be different.

  14. JohnB Says:

    Your plan is a trend traders plan (I’d say 9/10 of traders are psychologically trend traders). And the indexes only trend 10% of the time. So…..you should not trade them! Trade something that trends like oil or currencies. Otherwise your personality will not fit with the mkt. Or if you do trade them you’ve got to have the patience of an African alligator that eats only one time a year (as in you will have to wait for and recognize the rare 1 out of 10 trend days).

    ps. thx for your tickfade indicator!

  15. David Goliath Says:

    I don’t think you’re going to make a dime with this plan.

    Just my opinion. Only been trading the ES for two years.

  16. Prospectus Says:

    Thanks for the feedback. Is your criticism about the entry/exit choice, or is the whole thing bollocks? I’ve been trading ES for zero years, so…

  17. David Goliath Says:

    RappiedFyre knows what he is talking about though.

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