The monthly S&P500 Emini futures candlestick chart has not had a pullback in 14 months. This has...
The Trade Plan That Works for Me
05/09/2012 1:45 pm EST
Trader Jeff White discusses his non-complex, start-to-finish trade plan that covers preparation, execution, and the crucial risk and trade management processes.
Most traders have heard that you need to have a trading plan before you approach the markets, but what does that actually mean, and how do you get systematic with your trading? My guest today is Jeff White, and Jeff, when you talk about systems as a trader or being systematic, what do you mean?
Some people really take it to an extreme and they want to completely and fully automate their trading.
Most of us, however, are discretionary traders, and being a discretionary trader, I think it’s very important to walk into each day or each week with some kind of a game plan in place.
You need to have a process as a trader that you’re going to go through to not only locate your trades, but then how you’re going to implement that trade and how you’re going to manage it along the way.
It’s not just about finding a good set-up; it’s about putting on a trade and knowing what you’re doing throughout the progression of that trade, rather than taking the amateur approach of ready, aim, fire, which I think a lot of people do, and it gets them into a lot of trouble.
Alright, so does this mean I should be choosing all my trades in pre-market hours, or in my after-hours homework the night before, or can I choose something that’s happening right in front of me during the day?
I certainly like the idea of selecting trades outside of market hours. That’s something that I personally do, and a big advantage of doing that is that I’m able to take my time and do that right. I’m able to go through the process, and I can review more set-ups and take the very best ones.
And during the day, when the market’s on the move, I might kind of abandon my discipline a bit because I don’t want to get left behind.
So, if, for example, I’m looking for set-ups during the day and the market starts to lift, I might just put some trades on so that I can participate, and that’s not something that’s going to help me.
What I want to have is some process that’s a standing system for me, so that I know when I need to be taking action and when I need to be sitting on my hands and waiting for the market to come to me a little bit more.
Alright, so in your homework that you’re doing to plan out these trades, are you then finding profit targets and stop losses, and doing all of that before you get in?
Yes. I’m trying to find good set-ups that offer me good risk/reward opportunities so that I know where I’m involved in the trade and where I definitely need to be out of the trade.
I want to be able to determine a profit target, and that’s either going to be based on the pattern that I’m trading, or by simply looking to the left on the chart. I might notice a prior high or low that this thing is approaching.
And as I put that trade on, I also need to understand what needs to happen along the way for me to make some adjustments to that trade. I want to be systematic in that regard as well.
I like to have a couple of profit targets. Once my first target has been achieved—if not sooner—I’m definitely raising my stop at that point for the remainder of my position.
So again, it’s about having some checklist and some process for not only finding your trades, but also how to deal with them once you’ve got them on.
I imagine if you’re not disciplined, this would help give you something to lean on rather than just trading what looks good that day.
Absolutely. The market is a very emotional place, and trading promotes emotion. That’s not necessarily a good thing for a lot of people, so it’s very important to have some kind of checklist.
It doesn’t have to be rocket science. You don’t have to go through a thousand different system checks before you pull the trigger on a trade, but it is important to have confidence in your process and to have some contingency plans to fall back on should that original plan get disrupted in some way.
Related Articles on STRATEGIES
Has Mr. Market (S&P 500/Equities) priced into too much positivity, while inflation remains at ba...