Tim Wilcox -Trading Plan Template.pdf

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T RADING P LAN
T EMPLATE
Copyright © Tim Wilcox 2005
Disclaimer
All reasonable steps and due diligence have been taken in preparing this document. However, it
may contain ideas that are not appropriate to you or your style of trading, so do your own research
and draw your own conclusions. By itself, this document will not enhance your trading
performance, nor will it prevent you from incurring losses. Any losses that are incurred are the
sole responsibility of each trader. Under no circumstances will I, trade2win or the contributors to
the thread entitled ‘A Trading Plan – You MUST Have One!’ accept any liability for loss.
TRADING PLAN TEMPLATE
©T IM W ILCOX 2005
C ONTENTS
Introduction
Page 3
T RADING P LAN O VERVIEW
1. What is a Trading Plan?
Page 4
2. Who Needs a Trading Plan?
Page 4
3. What Will a Trading Plan Do?
Page 5
4. Before You Start . . .
Page 6
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5. Know Yourself, Know Your Purpose
Page 9
6. Trading Goals
Page 11
7. Markets, Instruments & Timeframes
Page 12
8. Tools of the Trade
Page 13
9. Before the Market Opens . . .
Page 14
10. Risk & Money Management
Page 16
11. Exit Strategy
Page 21
12. Trade Strategies, Setups & Entries
Page 23
13. After the Market Closes . . .
Page 24
14. Discipline!
Page 25
15. Golden Trading Rules
Page 26
T RADING P LAN E XAMPLES
16. Roll Up, Roll Up . . .
Page 29
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Introduction
Towards the end of 2004, a thread entitled ‘A Trading Plan – You MUST Have
One!’ on the ‘Trading for a Living’ forum was started on www.trade2win.com (T2W).
The purpose of the thread was to produce a template by which all traders - regardless of
experience, instruments traded, timeframes and brokers etc. - could create a professional
trading plan . This document is the result of that thread. It comprises two main sections with
a third section that in time will, hopefully, contain examples of real plans created using the
template.
T RADING P LAN O VERVIEW
The Trading Plan Overview addresses fundamental questions regarding the subject,
starting with a simple definition. It then moves on to discuss why traders need a plan at all
and, once they have created one, what it will do for them. Those traders who are already
convinced of the merits of having a plan, please feel free to skip this section!
T RADING P LAN T EMPLATE
This section is the nuts and bolts of the whole document. It comprises ten key units,
with a series of questions in each one: about 50 in total. This is rounded off with a final unit:
‘Golden Trading Rules’. The hope is that any trader can use the template to create their very
own bespoke trading plan. Make no mistake, it will take time and effort to complete. But,
having done so, you will at the very least, gain a greater insight into the kind of trader you are
now and enable you to focus on the kind of trader you want to become. Explanatory notes
and an outline for a possible answer accompany all the questions. For ease of navigation,
there is a reference number at the start of each paragraph. If you get stuck at any point, help is
at hand from fellow T2W members. Just post your query with the relevant reference number
Naturally, you can add elements to your own plan that you think are missing on the
template and, conversely, delete elements from the template that you feel are not applicable
to your plan. In order that other traders may benefit from your amendments, please post your
ideas on the thread above.
T RADING P LAN E XAMPLES
Currently, this section contains no trading plan examples. In an ideal world, it would
house at least three complete trading plans: one for index futures traders, one for forex traders
and one for stocks traders. The icing on the cake would be if they also covered the three main
timeframes: day trader, swing trader and position trader.
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T RADING P LAN O VERVIEW
1. What is a Trading Plan?
1.1 A trading plan is a complete set of rules that covers every aspect of your trading
life. Many experts refer to the need to have an ‘edge’ which will tip the balance of
probabilities of success in your favour. In itself, a plan is not an edge but, over time, the
trader with a plan will fair a lot better than the trader without one. Many amateur traders do
not have any sort of plan to trade by, and enter the markets with scant regard to their risk and
profit objectives. Suffice to say, comprehensive risk and money management strategies lie at
the heart of all good trading plans.
1.2 Traders with a plan have the ability to monitor their performance. They can
evaluate their progress continually, day-by-day, in a way that is objective and comprehensive.
This enables them to trade without emotion and with minimal stress. The trader without a
plan is not able to do this and their trading tends to rely upon gut feeling, hunches and tips
etc. Trading for them is a nail biting, emotional roller coaster ride of stress that, inevitably,
results in financial loss.
1.3 Obviously, a plan does not guarantee success; that would be too simple.
However, a good plan that is adhered to strictly will help to minimise losses and enable you
to stay in the game a lot longer than traders who do not have a plan. In his book ‘trading
online’, Alpesh B. Patel writes, “While a plan cannot predict the future, it can lay down how
you react to the possible outcomes. This is why a plan is essential. It is a list of strategic
responses to events beyond your control. You control the only thing you can control –
yourself”.
1.4 Some confusion exists over the difference between a trading plan (or system) and
a trading strategy. As stated above, the former is a complete set of rules that governs every
aspect of your trading life. It goes into great detail and may, for example, stipulate the
amount of time devoted to reading threads on T2W! The term ‘trading strategy’ tends to be
used to describe trade entry and exit criteria. However, these are merely elements of an
overall trading plan and possibly not even the most important ones. It is perfectly feasible,
desirable even, to include two or more trading strategies (i.e. entry and exit criteria) within
an overall trading plan.
2. Who Needs a Trading Plan?
2.1 Who needs a trading plan? Well, unless you have been a consistently profitable
trader over a sufficient length of time to encompass a number of different market conditions,
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then YOU need a trading plan! If you have achieved this, then this document may not tell you
anything you do not already know. However it may still prove useful as a “refresher” course
or indeed open your eyes to new aspects of trading that can improve your profitability.
2.2 Some people have described a trading plan as a roadmap. It is quite literally the
route that will take you from where you are now to where you want to be which, for most
traders, is consistent profitability. In this analogy, consistent profitability is the destination.
To embark on a car journey from John O’Groats to Land’s End without a good roadmap
would, probably, be unwise and the possible consequences of doing so are obvious.
Similarly, to embark on trading without a clear idea of where you are going, and how you are
going to get there, will almost certainly result in increased stress, sleepless nights and
financial loss - or all three. The question you must ask yourself is this: if you would not
dream of driving from the north of Scotland to the most southerly tip of England without a
detailed roadmap, why on earth have you not got a detailed and clearly laid out trading plan?
3. What Will a Trading Plan Do?
3.1 A trading plan will make the act of trading simpler than it would be if you traded
without one. It will limit your opportunity to make bad trades and it will prevent many
psychological issues from taking root. It will help you to achieve these things because
wherever you are on your trading journey, it will not only act as a roadmap, but also locate
your position as well. Most importantly, if your trading is going badly, you will know it is
down to one of only two possibilities: either something in the plan is not working or you are
not adhering to the plan. If the plan is a good one and it is back tested and paper traded, (or
forward tested with a very small amount of money) then the fault is likely to be found in the
latter of the two options. But, what if you are losing money whilst trading without a plan? It
is virtually impossible to distinguish what you are doing right from what you are doing
wrong. You have no way to evaluate your results, therefore the likelihood of being able to
diagnose the fault and correct it is small and could take forever. A trading plan is your
personal GPS device to locate your position and, if you have made a wrong turn, it provides
the means to identify where you went wrong and how to get back on track. You are able to
evaluate continually your results and, more importantly - your discipline - in a manner that is
objective and comprehensive. This is extremely difficult to do if you do not have a plan.
3.2 A trading plan should take away much of the decision making in the heat of the
moment. Emotional issues will become very powerful when real money is on the line and, as
likely as not, force you into making irrational decisions. With the correct trading plan, your
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