Today I've asked an old friend of Adam and mine, Jim Robinson who writes a fantastic Commodity Newsletter, to give us his breakdown of what it takes to be a successful trader. Please take time to enjoy the article, visit Jim's Commodity Newsletter, and please comment on what YOU think we need to know to be a successful trader.
==================================================================
I want to thank Adam for giving me this chance to be on the MarketClub Trader's Blog.
I am INO.com's #1 fan, so this is truly an honor and again thanks !
I'm just basically going to write down some things I feel you need to know to become a successful trader.
========================
THINGS YOU NEED TO KNOW
THINGS YOU NEED TO KNOW
#1 - You have to have a exact trading plan.
#2 - You have to believe in your trading plan.
#3 - When you start trading your plan, you have to follow it - exactly.
#4 - If you don't have a plan and follow it, you will not be successful trading.
========================
#1 - THE TRADING PLAN
If I had to make a guess I would say most trader's probably trade their entire career without a trading plan.
Does that sound hard to believe?
Well if you don't mind, let's take a little test here .
Write down your trading plan.
A) How to enter a trade.
B) Where does the stop go.
C) Where do you take profits.
And to me each of the above needs to be clear cut, no questions asked.
In other words anyone who followed your plan, would know exactly where to enter, where to get out, and where to take profits, at all times.
If your plan reads, I trade double bottoms, triangles, bull flags, or I use Stochastics, Moving Averages, etc. etc, I'm sorry but to me that isn't a plan, that is a hodge podge of chart patterns and technical indicators.
So let me give you an example of what I consider a trading plan, and this is just an example and is not an actual trading plan.
EXAMPLE PLAN - BUY
#1 - If the market trades above the 10 day high go long.
#2 - The stop if wrong is the most recent 10 day low.
#3 - If the trade moves your way, use the low of the last 10 days to take profits.
A sell example would be just the opposite.
=============================
Anybody that decided to follow the example plan above would know exactly what they were going to do before they even entered the trade, and they would know exactly what to do while in the trade.
============================
#2 - BELIEVE IN YOUR PLAN
This is where paper trading and testing, will come in.
If you see the plan works before you start to trade it, you will be able to stick to the rules.
If you don't have an exact plan, you will never be able to follow it, quite simply because you really have nothing to follow.
============================
#3 - FOLLOW THE RULES
This is where the going get tough, because most trader's can't follow a plan.
And quit simply that is why most traders lose.
If you have a trading plan you believe in through, paper trading and testing, you will be able to follow the rules, because you will know overall you are going to come out ahead.
===========================
#4 - YOU CAN DO IT !
If you develop a clear cut trading plan that works, and have the will power to follow it, you will be a successful trader.
Really the big secrets to a successful system are
#1 - Trade with the trend
#2 - Cut your losses short
#3 - Let your profits run.
Not much of a secret, right, everybody knows that.
Here's where I believe most fail even though we all know to trade with the trend, cut losses short, and let profits run.
Trading with the trend, cutting losses short, and letting profits run, can mean almost anything to anybody and that brings us right back to what we are talking about - we have to have a plan.
#1 - We have to know how to define the trend.
#2 - We have to have a specific rule for cutting losses.
#3 - We have to have a specific rule for taking profits.
Well I could go on and on from here, but I am also one of those people who believes in keeping it simple, so I think this is plenty for one lesson.
So please before you ever trade have an exact plan, and then when you start to trade - follow it.
You can do it !
Thanks !
Jim Robinson Commodity Newsletter 🙂
P.S. When you start trading and feel like you are not quite sure what to do at any given time.
The answer is, follow the plan.
I generally agree with you, but your example of a buing oppurtunity seems to be badly selected or inexact;buing from 10 days high and selling 10 days low would have led losses in a short time (one to two weeks period) when trading indexes and stocks. This is a valid strategy only with longer time frames, say several weeks and months.
I thought article was a good primer but lacked suggestions as to where one can find resources to develop a sound trading plan. Would appreciate some ideas on articles / books on the subject. Thanks in advance.
Ralph P - aside from the MarketClub website, which I really like and am glad I joined, I also belong to http://www.tradethemarkets.com
I used John Carter's trading plan posted in the member download section as a template for my plan, I found this very helpful. You can do a $5.00 trial membership for 14 days or something at their site, which gives you access to the download area. Who knows, you might even want to stick around for awhile 🙂 Hope that's helpful.
DaveDM
I agree with you Jim!
That is a great article that I believe to be dead true. And I mean DEAD true, because if you can't follow a well defined plan, good chance you'll be DEAD in the water, it's just a matter of time.
One of the hardest things for a trader, besides developing and sticking to a valid plan which I believe is crucial, is finding high probability setups that work -- not only work but work ON the markets that best suit a specific trader's personality. A trader needs to find the markets that suit them and the setups that work in that market. It's takes time, patience and money management so that a new trader doesn't blow out their account through the tough, money-loosing 'discovery process'.
DaveDM
jim, you are 100% right
if everybody follow thier plan they should,nt lose
I trade my plan to profit
thanks
hitandruncandlesticks.com taught me about a trading plan, highly recommended for a trader's approach to stock markets.
To Fleur,
Your dismay is understandable given all the baloney on the Web. My advice is to find out what other traders are doing, what their plans are, and use them them until one works for you. Yes, you'll lose money in the learning process so don't bet the farm on any trade. Also, ask what you want to know ( as you did in your comment ). Traders are not all arrogant twits. You'll get some thoughtful answers. Since your comment showed up on INO, I assume you have access to Market Club. INO/MC have excellent resources and you can use MC's rating system to tell when to trade, what the current trend is and when you should get out. Most traders lose money on their trades 80% of the time. Maybe a little less, maybe more. That means they have to win pretty big on 20% of their trades. If you don't have the self-confidence ( some would say stupidity )to handle this situation, then don't do it. If you can't stand the stress, then walk away. There's a lot to be said for the contemplative life. Best of luck. Sreve
Rule 1 - Plan your trade,
Rule 2 - Trade your plan
Result - get in, get out, get it done!
Thank you for the topic of how important it is to have a trading plan.
I know that we must have a trading plan, but how do we construct a good trading plan? What criteria do we use? Where do I find a guide? Is short tern trading plan different from long term trading plan?
OK, well... After playing around for a couple of months on the indexes and Forex, I have to agree to just about everything that is stated here. I have lost. Luckily I set a budget to learn the ropes where most people begin by trading on a demo platform.
It's all good advice folks. Yeah, sometimes we miss the signals, if only and what if just doesn't count though does it?.. Results. That's what we all strive for. I guess it's like Poker really, we only ever talk about the ones that got away or the best trades. Does anyone ever admit to doing it wrong?
Keep up the advice given and, even if it means waiting for the right opportunities... Believe in the wise words of those that know.
An excellent report, I look forward to learning more and reading the comments of others.
THUMBS UP FROM ME....
As a beginner, and trying to make heads or tales of being successful in a big, new and sometimes frightening world, I would rather take the advice Jim offers and start from there.
I liken this new process to me like going into the ocean to check out sharks up close. Rather than just jumping in, I would rather have a plan, like going into the water with the help of a shark cage. That way I know I will survive.
Thank you Jim.
, In your example plan you mention . ( If the trade moves your way,use the lo of the last 10 days to take profits. ) That sounds like advice for shorting the stock, Can you explane Better when to take profits,going long. ?
Gordon,
Hi!
In the example the buy trade had to move your way,
and then you would use the 10 day low for a trailing stop,
so you wouldn't be going short, you would be closing the position.
Also don't read to much into the example, it was just that a qick example and not meant to be a trading plan.
Also there are alot of trailing stops you can use,
like the parabolic indicator, or a close below a certain moving average, and again those are just ideas.
By the way one of the best trading plans you can find is Market Club.
Thanks for your comments !!
Jim 🙂
All I know is I ask vectorvest about BAC when it was 3 bucks a share and they gave it a NO buy, Can you imagine how that feels at this point...I want to ring them like a wet towel...Arrrrr.
I agree with some of what Wayne says.
As for me, you have to have a basic, mathematical perspective of your price objectives, but always must know that your objective will not be met and you have to adjust to the new circumstances as they always occur. One must pay attention to all markets, not just the ones one is trading in. One must have contingency plans built into the perspectives.
I just covered, my shorts in oil. I lost on this trade. I was betting oil would fall along with a stock market top and dollar bottom. It didn't happen but it still might. So I covered now but may jump back in and try it again.
how about a place where you can find different trading plans. every one says to develop a trading plan. its like asking someone to reinvent the wheel. if i had a trading plan i would not be here reading this post.
Ray,
There are lot's of trading plans and strategies on MarketClub.
Here is a strategy for you.
http://broadcast.ino.com/education/perfect_portfolio/
All the best,
Adam
Interesting article stating what most traders come to learn if they survive. I dont believe though that all aspects of the above are valid in all situaions. Say for instance you are spreadbetting the DJIA30 index using only technical indicators like moving average crossovers or MACD. I deas around where to put your stops are non options as the trading is not done that way. Running your profits etc also are difficult as when you use MA crossovers you bleed away part of any profit waiting for the signal. Sometimes all the profit,. So if you cut and take the money you are not trading ito your plan if you are trading MA crossovers for example. Just something that came to mind when reading the blog