Trading Model

My trading model is a work-in-progress. It is a compilation of the materials (posted on the blog) I have read. I am opting to use the term “trading model” instead of the more generic use of “trading plan”. While reviewing the books and articles, the loose use of terminology in this area creates a vague description of what it is, what is needed or required. I use the term trading plan to describe the actual implementation of strategies, risk & money management and a daily routine.

Excerpts from Wilcox’s book:

“A trading plan (“model”) is a complete set of rules that covers every aspect of your trading life… It is used to evaluate your progress continually, day-by-day, in a way that is objective and comprehensive. This enables trading 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… 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”.

It will limit your opportunity to make bad trades and it will prevent many psychological issues from taking root. 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. 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.  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 every action should be spelled out, so that in the heat of the moment you do not have to make any decisions, you just follow what the trading plan stipulates.

  1. Trading Goals
    1. Achievement/Vision – why do I want to trade, what is my purpose for trading, how will I decide when I should not trade anymore?
    2. Trader training and prerequisites to going Live – before taking my 1st “Live” trade what do I want to accomplish?
    3. Financial Objectives (mthly, yearly) – what are the P&L goals broken down
    4. Trader Evaluation – how will I measure my success in consistently trading my strategies?
  2. A Trading Mindset
    1. Identify the mental skills or abilities to trade a strategy consistently
      1. Belief or leap of faith in the trading model
      2. Effects of multiple winning and losing streaks in trading
      3. Removing emotion from trade identification and execution
    2. How will I accomplish this
      1. Meditation
      2. Reading books
      3. Pre-Live mental conditioning stage
      4. Daily mental conditioning stage
  3. Trading Plan
    1. Strategy
    2. Risk
    3. MoneyManagemet
    4. Daily Routine
      1. Pre-mrkt
      2. During market
      3. Post-mrkt
      4. Weekend
    5. Preresquisties
      1. Backtesting
      2. Paper trading
      3. OnDemand trading
  4. Measuring Performance
    1. Collecting the data
      1. trades journaled in Excel along with the market state – need a template
      2. printout of chart setup + trade
      3. video recording of screen while trading
    2. Trade Analysis
      1. Daily –
      2. Weekly
      3. Monthly
      4. Quarterly
    3. Improvement
      1. Morning review of printouts
      2. Nightly review of video recordings
      3. Ask
        1. What was my bias prior to the trade? Why?
        2. Was I in sync w/the market(trend, rangeBound) at that time?
        3. Was I aggressive or conservative on my entry?
        4. Did I overlook a setup, if so, what was the reason?
        5. Did I exit early or at target? Is my stopLoss too tight? Is my trailingStop to tight?

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