Tis the time of the year to turn off the machine & back way. You need to enjoy where you have been & what you have. Reflect on all you have to be thankfull for & enjoy life. You only get one.
When somebody asks me what earnings were for a specific stock, I tell them I don't know & don't care. Investor perception is what moves the market. Investors are always building into the market what they expect to happen in the near future. It is when those expectations are exceeded or failed that we see the market move accordingly. Perfect example was the market yesterday. The Fed lowered the rate 3/4% & the expectation was .5% and the market closed up over 300 points. Can anyone show me what the benefits of lowering the Fed Funds Rate have been for the economy lately? An other example is Goldman Sachs yesterday. They only lost 2.1 billion dollars & closed almost $10 higher than the previous day. Why you ask? Because the investors had expected a larger loss. Remember the investor's expectations are always being built into the market & it is whether or they are met or not that moves the market.
Traders out there that have not had an opportunity to be grilled by me may not know how much of a money management advocate I am. Today’s topic is an attempt to ‘hammer home’ the importance of trade plans and show what they can do for your trading ability. My view is that no cares about your hard-earned money more so than you do. Protect it and know exactly how to allocate funds appropriately.
“Blah, blah, blah Tim; seriously, this is enough of your jibber-jabber about Trade Plans. All I’ve heard lately is ‘Trade Plan this’ and ‘Trade Plan that,’ well I’m sick of it.”
That’s just too bad anonymous voice interrupting my blog.
Let’s get one thing straight; we trade to make money. Pure and simple, this is the absolute easiest answer to relate to anyone. The reasons may be different, but it all comes back to money.
Creating a trade plan is the single largest task most traders do not perform. If you have no idea what I’m talking about, refer back to the blog ‘5 Stages of a Wizetrader.’ Why do people abandon this task you ask? Well, for one, it requires work. Yes, that’s right; traders would rather spend hours trying to figure out why a market order filled 2 cents higher or lower than their entry, but will not spend 15 minutes developing a plan for the future.
According to the RCS (Retirement Confidence Survey 2004), 30% of middle aged to close retiree workers in the United States has a total savings of less than $25,000. Hopefully you read that and did not just skim over it; 30% < $25,000 in Savings! Only 9% of workers in the same age bracket (age 45-64) have a total savings of $25,000-$49,000.
(Source: TIAA-CREFInstitute.org)
Trading has become an outlet for people in this major age bracket (or older) to become financially independent. In order for that to occur, you have to know how to travel from ‘point a’ to ‘point b’ without losing an account.
There are many training resources on the Web Community and WizetradeTV that deal with steps to take to create the trade plan. I’m going to assume all my readers understand the basic concepts or know how to search for information so the basics will not be discussed during this article. The purpose of this Blog post is to show application of a hypothetical plan designed for a particular purpose; to make money (for the individual who created it; create you own to apply.)
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Trader Tex’s Personal Trade Plan |
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Purpose: |
The purpose of my trade plan is to pre-plan for situations that may stump me during the journey of account building. |
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Current Account Value: |
$10,000 |
Short Term Account Goal: |
$20,000 |
1 Year |
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Long Term Account Goal: |
$50,000 |
4 Years |
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How Will I Obtain This Goal? |
This plan assumes I do not add capital to the balance. All growth of the account is assumed made from profits from investments. My plan to increase the account value from $10,000 to $20,000 over the course of a year will be broken up into monthly, weekly, and daily dollar goals. I will only trade stocks, forex, and options that will result in even distribution of shares or lots. |
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Values to Take $10k to $20k in One Year: |
Monthly |
Weekly |
Daily |
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$833.33 |
$192.31 |
$38.91 |
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Simple Statement: |
If I can make $38.91 per day, I can reach my short term goal in the time allowed. |
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Trade Distribution: |
FOREX |
Options |
Stocks |
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$1,000 |
$1,000 |
$1,000 |
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USD based, 10 (mini) lots. |
No more than 2 contracts; each to not exceed $500 per contract ($5.00 per share). |
No more than 100 shares. Trade stocks between $5 - $10. Do not trade below $1.00. Position trades expected. |
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Active – Swing |
Swing - Intermediate |
Intermediate - Position |
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Account Note: I will not trade more than 10% of my account balance into a single trade. I will diversify my account to cover multiple markets. I will not place more than 80% of the total account value into the market; thus leaving 20% cash value. |
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Max Risk: |
FOREX |
Options |
Stocks |
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15% - 20% |
20% + Spread + Commission |
35% + Spread + Commission |
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<$200 |
$200 + <.20(contract) + $5.00 |
$350 + <.10(share) + $5.00 |
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Min Reward: |
>15% (20% Swing) |
>25% |
>45% |
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$150 ($200) |
$250 + |
$450 + |
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Preferred Risk/Reward Ratio/$ |
1:1.5 |
1:1.5 |
1:1.5 |
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Risk: $150, Reward: $225 |
Risk: $200, Reward: $300 |
Risk: $350, Reward: $525 |
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Results if 50% Accurate Using Preferred R/R Method (Weekly): 2 Winners/ 2 Losers |
FOREX |
Options |
Stocks |
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Profit: $450 |
Profit: $600 |
Profit: $1,050 |
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Loss: $300 |
Loss: $400 |
Loss: $700 |
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Result: +$150 |
Result: +$200 |
Result: +350 |
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Meet Weekly Goal? |
Weekly Account Goal = $192.31, Total Profit after 1 Week = $700.00. (Close to reaching monthly goal $833 after 1 week.) |
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Max Capital Used: |
$3,000 |
Once Monthly Goal Hit, What Happens? |
Do not trade. Play golf; come back next month. |
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Resources Used: |
Tim’s Account Goal Calculator & Good Old Fashioned Mathematics + Experience in Market (minimal) |
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Things to Consider: |
This trade plan will require updating once per month, if market conditions change, account balance significantly decreases or increases, reevaluate all risk and profit totals there after. |
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Orders Used: |
Market, Limit, Stop Loss, Trailing Stop (If necessary) |
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This trade plan is not all inclusive. As a matter of fact, due to my personal time constraints, I could not include everything I felt necessary for the plan to be 90% useful. There is still the matter of a contingency plan, emergency plan, identifying individual stocks and currencies that match the criteria, and much more. This is just a shell to help you get started.
If any readers viewing this post feel this information is important, please send the link to others. You can find my Account Goals Calculator in this thread to help you get started. Thanks for reading; I hope this helps someone out there. Feel free to contact me if you run into questions: ttruelove@wizetrade.com.
Tim Truelove
National Trainer II, Wizetrade Options
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