Top 5 Rules For Creating A Trading Plan

2016-01-22 | Bruce Marshall

Since the first of the year, we have been in a downward spiral with small hints of rallies sprinkled it. This market action has been very difficult to trade and unless you have remained short or in cash, you have probably not done so well.   I mentioned in my last post that sometimes the best thing to do is nothing at all. Until we get more clarity on a bottom, turnaround or some sense of direction, doing nothing at all may continue to be one of the best moves to make. That being said, as traders, we are all getting tired of sitting on our hands and not trading. If you must trade or want to start testing the waters, there are several things to do and to be aware of.

  1. Keep the number of positions to a minimum or at least a very manageable number for you. This may be 1 or 2, or 5 or 10 trades, but keep it manageable and lighter than your “normal” number of positions.
  2. Always know your maximum amount at risk. This is a given and this can be said anytime you are trading, but when you have the speed of the big moves we are seeing almost on a daily basis, things can get out of hand quickly and before you realize it you have a big loss.
  3. Now is not the time for long shots and speculation. Try to stick with the trend of the market and use the trend to your advantage. Counter-trend trades may not work too well in this market.
  4. Now is not the time for loading the boat. Again, this goes without saying, but don’t think that only using 1 or 2 trades and loading the boat is “reducing” the risk.  Bite sized singles and doubles can add up.
  5. Be very aware of order entry, pricing and order fills. When market speed picks up, it is harder to get good pricing on your fills. Lately, the big index spreads have become wide and I am not getting good fills. This problem increase dramatically when the market is substantially up or down with lots of directional movement.   You have most likely seen the crazy pricing and wide spread likely, so you need to “work” your orders much more than normal.