fork4k

I've always thought to be a successful trader, you need to ensure you consistently follow a method without jumping from one method to another as soon as you start seeing a losing streak. A key part to being able to stay consistent with a trading approach is to have both a business and a trading plan. At least, for me, I found both improved my results considerably and kept me much more focused on the things that most effected my bottom line. This forum seems to have quite a few talented (and more importantly, profitable ;) traders). So this got me curious ... how many of you have a business and a trading plan written down? I ask this because most of the literature expounds on the importance of these two. My own personal experience seems to be in line with this conventional wisdom. However, I'm eager to see if there are many successful traders who don't have a business / trading plan? Maybe it's all a waste of time for some people? So what do I mean by a business and a trading plan. A business plan, in my opinion, covers topics such as: 1) What is your overall goal with trading? Beyond making money (which is obvious ... although what kind of money? A steady stream of cash (i.e. income growth)? An increase in your total equity (i.e. wealth creation?), what other goals do you have of your trading? 2) What are your fundamental beliefs about the markets? 3) When you try a new trading approach (maybe you are going to try trading a new market? Maybe a new entry / exit strategy?) what kind of restrictions are you going to place to make sure that as you experiment with the new strategy, you do not blow a serious hole in your existing trading capital? 4) What kind of position sizing algorithms do you plan to use? 5) What are your maximum acceptable drawdowns / minimum desired profit levels? 6) What kind of tools do you want to use with your trading? 7) When do you know you need to stop trading because your losses are too much and you need a time out? In contrast, a trading plan, in my opinion, would cover topics such as: 1) What is my ideal setup to enter a trade? 2) How am I going to enter the trade (pyramid in? Single entry?) 3) How am I planning to manage my trade (exit? Stop loss? Trailing stop loss?) While you will probably have one business plan, you might have multiple trading plans depending on how long you have been trading. So yeah ... all this typing :P ... back to the topic ... how many of you have written a business / trading plan?

Re: What's your strategy for coping with big losses? What I do is get some perspective on the big loss ... this'll be hard to do at first because you don't have enough data ... but, basically keep a track of every trade you do. And represent the results of every trade in terms of a risk multiple. i.e. let's say you were risking $100 on a particular trade (eg: Buy 100 shares @ $10. Stop loss @ $9.) but in the end you made $200. Represent that as 2R (you made twice how much you theoretically risked). On the flipside with that example, lets say you lost $150. Represent that as -1.5R (i.e. you lost one and a half times (probably because of a gap / slippage) the amount you theoretically risked. Now average all your risk multiples to get an answer to the question: "On average, for every unit I risk, how many units do I gain". NOW, even if you have one crazy trade where you lost a lot, that's ok ... look back on the effect this anomaly had on your average return on each dollar risked ... you'll realize that once you have enough trades, these few odd balls shouldn't adversely affect your overall performance much. If you are just starting out, then, as some other posts suggested, focus on capital preservation not growth ... when starting out, your goal is to LEARN without paying much for it ;). Risk a very small amount of your capital on each trade (say 0.25% of your equity) and you shuldn't have huge drawdowns. But still represent all your trades as risk multiples ... this way once you get enough trades and a good enough average risk multiple, you can start upsizing your risk per trade.