Example of My Trading Plan by John Carter 2011 www.tradethemarkets.com
A. Markets to Trade
1. 2. 3. 4. 5. 6. 7. 8.
Emini S&Ps Bonds Emini Dow Notes Emini Nasdaq Euro FX AGS Single Stock Futures Products
Why these markets? markets? Trading Strategies: Strategies:
Emini S&Ps: used for intraday trading setups including tick/tiki fades, gap plays and moving average crossovers. Bonds: Doldrums intraday trades Emini Dow: used for swing trades and positi po sition on trades with your own o wn setups Notes: Swing and position trades Emini Nasdaq: swing trades of a few days to a few weeks. Euro FX: Intraday trades AGS: Position trades SSFs: Position trades
Swing Trades: A few days to a few weeks Position Trades: A few weeks to a few months
NOTE: Parameters are NEVER TO BE CHANGED CHANGED once onc e a trade is entered. If it is is entered as an intraday trade, you will not update the parameters to then make it a swing trade, and so forth. forth. Parameters are determined before a trade is entered. B. Size: Number of Contracts
The total amount of funds under management can change on a month to month basis. Therefore, I am basing the amount of o f contracts to trade on a per hundred thousand t housand dollar basis. The number of contracts to be used is as follows: follows:
Contract Emini S&Ps Bonds Emini Dow Notes Emini Nasdaq Euro FX AGS
$100,000 6 3 3 3 3 3 3
$1,000,000 60 30 30 30 30 30 21
$2,000,000 120 60 60 60 60 60 39
$5,000,000 300 150 150 150 150 150 99
C. Account Size
Your personal futures account: $500,000 Managed account totals will vary depending on total amount of managed accounts. Adjust ratios of size based on amount in each account/total amount under management. Have managed account participants withdraw 50% of trading profits at the end of each quarter. On your own account withdraw 75% of trading profits at the end of each month. Never add money into your account Managed accounts can add money to their account only if they already have positive returns.
Why withdrawal profits? This is the best way to protect profits. It also is a reminder that the numbers on the screen are real and represent real cash. D. Execution Methods Contract Emini S&Ps Bonds Emini Dow Notes Emini Nasdaq Euro FX AGS
$100,000 2, 2, 2 1, 1, 1 1, 1, 1 1, 1, 1 1, 1, 1 1, 1, 1 1, 1, 1
$1,000,000 20, 20, 20 10, 10, 10 10, 10, 10 10, 10, 10 10, 10, 10 10, 10, 10 7, 7, 7
$2,000,000 40, 40, 40 20, 20, 20 20, 20, 20 20, 20, 20 20, 20, 20 20, 20, 20 13, 13, 13
$5,000,000 100, 100, 100 50, 50, 50 50, 50, 50 50, 50, 50 50, 50, 50 50, 50, 50 33, 33, 33
Specific examples of execution methods in the S&Ps are as follows:
Tick Fade: Ticks hit +1000 on a day you are bearish. Short 2 contracts with a 6 point stop and a 3 point target and a 30 minute time limit. If in the next 5 minutes you get readings of +1100 add 2 more and +1200 add 2 more. If you get readings like this later in the trade, such as 15 minutes, do not add additional contracts. After 30 minutes if neither your target or stop have been hit, you have to finesse your way out.
MA Crossovers: Off 5 minute chart, buy 2 contracts when the 9 period crosses the 18 period and use a 3 point target and 6 point stop. There is no reason to add to this trade. Exit trade when target or stop hit, OR when moving averages reverse and cross back. Fib Clusters: Use fib clusters off the 60 minute charts for swing trades. Use a 2:1 ratio for stop/target. Economic Reaction Play: Fading initial reaction of economic plays. Utilize 1/3 positions only and 2:1 parameters/30 minute stop.
Box Trades: Buy breakout or short breakdown of box, and target is width of the box, stop is a move back into the box on a closing basis.
Higher Low, Lower High: Take trade in anticipation of breakout o r breakdown. Close into breakout or breakdown.
Mary Anne Trade: Take your position in the NQ, ES or DOW nad use the Mary Anne 10 point (or equivalent) stop for the close, and leg in AM, early afternoon. Then just let it sit. Better yet, leave.
E. Drawdown Rules
If you are down 12% for the month, cut position size in half for the rest of the month. If you are down 16% for the month, stop trading the rest of the month. If you hit a 30% total drawdown, it is time for a 6 week break from trading. Maximum overnight exposure is 1/3 lot size For overnights/swings/position trades have hard stop of 20 points Daily drawdown max is $2,000 per $100,000. If at the end of the day you exceed this level, you are on probation the next day. If you exceed $2,000 per $100,000 again that week, you are done for the rest of the week. This is your punishment for breaking your trading rules. Hedge with options for position trades and/or utilize options for position trades.
F. Profit Rules
$500 per day average per $100,000 Focus on generating 5 $1,000 per $100,000 days per month If you are up over $2,000 per $100,000 before noon, stop trading for the day. If you have a day where you make $5,000 per $100,000, take the next day off. Stop trading for the rest of the month at $20,000 per $100,000 Track daily P&L in excel and convert to % returns per day and graphs
G. Grade Card
Track all trades and rate as follows: 5: Target Hit 4: Out at a different price than target, but profitable (time stop) 3: Out at even (scratch, time stop) 2: Out at a different price than stop, but a losing trade (time stop hit) 1: Stop hit Add up your daily score and divide by the number of trades to get an average. This keeps a “grade point average” of the number of trades you made that are profitable. Track by trading method used as well. At the end of the month, you should have something that looks like this:
Moving Average Trade: 4.2 Conjunction trade: 4.5 Monkey Trade: 4.2 Gap Trade: 3.4 TOTAL OVERALL SCORE: 4.075
This way you can rate each method or tweak as necessary. IMPORTANT: Any trade you take that does not fall into a specific setup or chart pattern you have outlined, you need to label as follows: “IMPULSE PLAY” This is your weakness and if you succumb to this temptation you must track it and see the impact it has on your trading. Jot notes on each trade. Did you jump in too soon? Did you miss a fill? Did you chase? Daily report card 5 to 1, with 5 being the best. Part of this should tie into your numbered performance, but a part of this is also subjective. Did you come back from the dead and go positive by the end of the day? Did you deliberately choose not to trade because it was dead? Did you chase a play? Keep track of this each trading day and look at weekly, monthly, quarterly and yearly averages. H. Momentum vs. Distraction
Track daily, weekly, monthly momentum: Track your trading “grade card” as well as your daily report card. Focus on consistent profits and smaller drawdowns. How many days did you start off losing but ended up on the plus side? How many days did you start off strong only to give it all back? What was going on that day in terms of interruptions, phone calls, family stuff, etc.? You get in trouble when you are doing well and want to then go for that “bigger piece of cheese.” Keep track of any days where you let greed get the best of you, then work on reducing the amount of those days.
I. Office Setup
I have a condo that I have set up specifically for trading. I have 5 computers and 12 monitors. I have cable internet access with back up dial up, plus 2 phone lines, a fax and a cell phone if things go wrong. My goal this year is to get an assistant who helps only with order entry. I have looked at “regular” office space but find the solicitors and general “banter” too distracting for trading. I am a night owl. It is very easy for me to be looking at charts late into the night. If I am going to bed at 1:00 a.m. this makes it difficult to get up very early. Get to bed by 11:30 and get up by 6:30. In the morning you can add to your research and also set up your trading plan for the day. This way you head into the trading day with your plan fresh in your mind. J. Rewards for Performance
When you hit 60% for the year, take the next 6 weeks off. If it occurs in Q4, take the rest of the year off. Go to Northern Italy, Paris and Switzerland for 2 weeks Go to Nantucket or Bermuda for 1 week Upgrade home theatre system New Rolex
K. Vulnerability
After a $5,000 per $100,000 day, escape walk on wateritis by taking the next day off and doing something that humbles you: like playing golf or flying a plane. Do not trade S&Ps between 12:00 and 2:00 except if you are managing an existing position. Between 8:30AM Eastern and 10:30AM Eastern leave Instant Message off, do not check email and do not answer phones. In the trading room let people know you will not answer questions during this time. Minimize the trading room window so you do not read what is going on in the room. You can talk out what you are looking at and what you are doing over the microphone. If they have questions they will have to wait. If they don’t like that they can leave. Do not trade anything during the overnight/globex session. Better yet, don’t watch it either. If you quit early due to a 20% month, physically get away so you cannot trade. Go to Cape Cod if it is summer or go skiing if it is winter. Do not trade after 12 Noon on Fridays. Focus on trading lighter during the last three days of options expiration. Review your performance during this time and consider this as your time off during the month. For the past year the market seems to do absolutely nothing during this time.
After 1st two trading weeks of the month, take the next 2 trading days off and get away from the markets. You tend to start out strong each month and finish weak. Give your brain a rest. (Maybe time this so it correlates with options expiration). If you reach your daily profit goal after 12 Noon, continue to trade until you have a losing trade. Once this happens, your next goal is to have a winning trade to end the day on. Take off entire week of Thanksgiving Take off last two weeks of the year Take a minimum week off in June and a week off in August
L. Spread the Wealth
5 % of your profits and earnings to be given to individuals and causes that you would like to support. This includes helping out family members. M. John Personal Life and Trading
You have a lot of stuff going on with the website, other businesses and trading. You already know that trading is the “real” job that you want to do, and it is possible you will drop other projects if they become a distraction. Compartmentalize and focus on trading during trading hours. Turn over the day to day running of the site to someone else. Get your newsletters and live trading room geared o nly to what you are doing. Right now you are still writing newsletters about markets you do not actively trade any more. In reality, these newsletters are for you to help force you to clarify your own research. So do them for you! Do not try to please all of the people all of the time. If you are traveling, don’t try to day trade. If you have distractions, do not trade. Get rid of the distractions first. Examples include having guests over, morning phone calls, instant messages from members asking about a trade. Turn them off. You do all of your research at night, but I think it would be better to do most of this in the morning to bring focus to the day. Clear your desk and complete your ritual in the morning and create what if scenarios. You are expecting the markets to die? What do you do if they breakout to the upside? Focus on classes to keep you focused: Yoga, Martial Arts, Pilates, Cardio Kickboxing, Volleyball: Map out a weekly schedule START LOOKING AT doing the newsletters in the morning, for two reasons. First, this gives you a life after the close (spend the first hour filling in the data and “saving as” the 3 newsletters. In the morning you write the commentary, do your daily ritual, pick your trades, see what is going on in the morning). This way you start the trading day extremely focused. On days you have Yoga you have to get it done before class..
O. What to Track
There are a lot of indicators out there. What is important for you to track on a daily basis?
Look at the major indexes (Dow, SPX, OEX, NDX, Composite, Russell 2000) and major sectors (Banks, Brokers, Semis, Computer Technology, Internet, Retail) and note the weekly, daily, and 60 minute action on the following: RSI, MACD, Stochastics, Volume, key chart formations in play, and po sition of moving averages. You can make a “Buy, Sell or Neutral” rating and put this in a spreadsheet each night. This will help to pinpoint when a key sector like banks is starting to fall apart, etc. The purpose of this exercise is to give you a visual of how these markets are unfolding.
Also do the same with S&Ps, Bonds, Notes, and Euro FX.
Note all economic data and what times it is being released, as well as key earnings and any Greenspan talks.
Note the daily Arms Index reading, 3 day highs and lows, Key Fibonacci Cluster areas and the closing Tick readings. All of this is a part of your nightly/daily ritual.
N. John Health
Your ability to trade is in direct relation to your mind. You sharpen your mind through physical activity and plenty of exercise, as well as healthy eating. In addition to your gym workouts, sign up for a tension release class such as Yoga. Also get involved in activities to take you away from trading after the markets are closed. This past summer it has been volleyball and water skiing. It is best to be doing something physical. Do not visualize great trades. Positive thinking works in all areas of life except trading, which is why so many people fail at it. If you picture big profits, you will trade in a way that does not focus on limiting risk, and your profits will be siphoned from your account to those that are focused on limiting their risk. Focusing on big profits will also cause you to trade larger than you should. Stick to the business plan. Your goal is not to hit home runs. Your goal is to make continuous contact with the ball. This is the plan. The key here is complete and accurate daily records so that you can assess your trading. Review your progress on a month to month basis and make changes in your strategies based on your performance.
Miscellaneous Trading Tips
1. The more you trade, the worse you will do. Focus more on the swing trades. Maximum of 5 intraday trades per day. Set them up, post your parameters and don’t screw around with them. 2. For intraday trades, always trade a setup, no impulse trades. 3. Don’t stare at the P&L. Cover it up and focus on the trade execution so you are not trading from a position of being “ahead” or “down.” 4. Focus on mechanical signals that don’t care about what you are feeling about the markets. 5. If your parameters are not clearly written down befo re you enter the trade, don’t enter the trade.
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