CHAPTER 8
Formulating Your Trading Plan
In 1992, Jack Schwager published The New Market Wizards. The chapter titled “The Silence of the Turtles” covers an interview with Harold Seidler, one of the many market wizards mentioned in the book. In this interview, Jack asked Harold, “What advice would you give someone in regards to being successful in the markets?” Harold replied: “I think the single most important element is having a plan. First, a plan forces discipline, which is an essential ingredient to successful trading. Second, a plan gives you a benchmark against which you can measure your performance.”
Trading is an exercise in well-planned strategy. It is said that to have good trading results, a trader needs to spend 70 percent of his time in planning and only about 30 percent in trading. He formulates a plan and follows it in a firm and disciplined way.
The ability to make decisions confidently in trading is to get rid of the fear factor. Fear arises when there is uncertainty. Fear is a hindrance to making good decisions and having a trading plan will help alleviate fear. A trading plan does not have to be complicated, but it has to be clear. It has to blend with the trader’s character and thinking.
The trading plan should include the basic elements of deciding the type of trades that suit the trader, the method of selecting stocks, the conditions for trade entries and exits, and the contingent steps to protect capital.
In this book, examples of trading are not based on ...
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