Trading Rule #16 – The Painless Trading Plan

Chances are, unless you took the teacher an apple each day to school (my wife used to put dog poop in her teacher’s desk drawer, bless her), then you probably do not have a trading plan.

Why?

From what I can gather, the reasons are:

1. It seems like work with no benefit.
2. It’s boooooring.
3. I just wanna press buy & sell.
4. I don’t really understand how to do it.

FREE BONUS: Take a look into the decision-making process of professional traders with this video training series that helps you make smarter trading decisions. (Article continues below)

Human nature dictates that the more we benefit from something, the more likely people are to do it. So let’s focus on 1 & 4 and let’s not try to help those still in their “trading space invaders” phase.

I spent a lot of time before trading as a consultant and then running software companies – some sales but mostly R&D and development.

That meant I took a lot of people from developer to designer to business consultant right up to the girl I trained so well, they replaced me with her as she was a 10th of the cost. Developing the people was not a gift, it was something you did to keep them. You take a programmer that never did a design, and first thing he’ll ask you “do you have a template for a design?”. Every promotion came with the same questions “templates, please?”. Now, we did have templates and dev processes, but on their first project, I would not let them use it.

The reason – it DOESN’T matter.

Any document has a purpose and an audience. For your trading plan, the audience is you, and maybe later you might share. As such, the only person it needs to please is you. It should not contain anything you don’t need yourself. In the development shops I ran, of course I would tell people how to do the design (we’d do meetings to discuss the sticky points), but that would be 5-10% of a project, they were on their own with the rest. So, if the document has what you need for you, then it’s right. So let’s not sweat that part.

The Bridge to Planning (and you could just do this)

If you’ve been doing this long enough, then at some point, you’ll be looking at something you read about and half way through you realize “I looked at this before”. I have the memory of a Goldfish that had a knock to the head. Plus, I was a sponge for information. I’d read way more information than I could use. Even if you don’t write a plan then please, please, please write yourself 2 lists. A simple spreadsheet, Google Sheet, or notepad.

Write down what you tried and what the outcome was. Be honest with yourself. It could look like this:

1. Moving Average Crossovers – did not find any edge
2. Trading FOMC – tried it once, got burnt, didn’t go back
3. Pullback Trading – got it working but struggling in high volatility environments

Even though I said “write 2 lists”, what did I do? I wrote one list with working and non-working items. You know why? That’s the way I like it.

I talk to traders all the time, and I ask them “what have you tried” and they say “everything” then I ask “what worked?” and they say “nothing”. In other words, they didn’t make notes, can’t recall what they tried, and will likely go round in circles trying different things.

In Trading Rule #4, we talked about choosing your trading religion. Sorting the good from the bad. You are the bouncer at Club Trade and if a bad idea got into a fight with your account last week, are you really going to let him come in and wreak havoc again?

I told you this would be painless. Next week, we’ll look at what goes into a nice, simple, painless trading plan but before we get you doing that, your job now is to work on that list to the best of your ability.

Our rationale behind you doing this is based in neuroscience and psychology. The “generation effect” means you remember and understand something when you produce it yourself, in your own sentences and words. You have to organize your thoughts, fill in gaps, and clarify ambiguities—you have to make it coherent. It exposes gaps in your knowledge.

But your list will surprise you, take a few passes but also – next time – do it AT THE TIME. All you need is a spreadsheet or Journalytix. We’ll show you that next week.

But do the list, please – next week we are going to be doing some planning, and we don’t want you to add an ingredient that’s already past its sell-by.