Hello friends. I've been working on a trade plan. After losing 30% (approximately 30 U$D) of my penny micro account by holding on to a bad trade rather than allowing it to be stopped out, I realized I must have a trade plan before I could proceed any further. The following trade plan is based on Tim Wilcox's "Trading Plan Template" found at http://www.trade2win.com/media/knowledge/tim-wilcox/T2W_Trading_Pla... Incorporated in are essential trading rules and common trading mistakes that are found in many online lists. This is a work in progress and is not intended to imply how or why anybody else should or might wish to work their own trading business.
Update 11/21/09 I sold my beer cans at the local scrap metal business and got $18.50, and I found a $20 in the park while walking my dogs. I'm back even with the Forex. I will start live trading again in December. And this time I will always honor my stops.
Update 12/15/09 I sold yet more beer and soda cans at the scrap metal business and made $21.60 which I applied to my credit card bill. This gets me even with the losses from my earlier forex accounts at IBFX and FXMC. Both of those brokers traded against my stops. I will not trade with a broker who hunts my stops. Additionally, I've got a revision to my trade plan to post. The changes are to section 16, Trade Entry Setups.
Update 3/21/10 Changed many sections to eliminate contradictions and fallacies, to tighten self accountability, to ensure discipline, and to establish emplacement of proper trading psychology, and added article 14.21 for accountability to bottom line and performance.
The content, information, techniques, methods and data contained in "Robert Bumbalough's Trading Plan" or any part of this blog, are for informational purposes only and is provided without warranty of any kind.
The content, information, techniques methods and data contained in "Robert Bumbalough's Trading Plan" and any part of this web site, should not be interpreted as investment advice, or as a recommendation to buy or sell futures contracts.
The content, information, techniques, methods and data provided are obtained from sources deemed reliable but not guaranteed as to accuracy or completeness.
The user releases Robert Bumbalough from liability due to the use of the content, information, techniques, methods and data contained in "Robert Bumbalough's Trading Plan" or any part of this blog.
Testimonials on this blog are individual experiences and they do not mean that you will or can emulate their performance. You should be cautious of claims of large profits from day trading. Active futures trading and day trading will generate substantial commissions even if the per trade cost is low. Capital exposure to loss can be extreme and you can lose more than you initially deposit with your broker, always use stop loss orders and or hedges to limit potential loss.
Individual results may vary. Past performance does not guarantee future results.
CFTC Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Past performance is not necessarily indicative of future results. No futures or commodity trading system can guarantee profits. The risk of loss exists in futures and Foreign Exchange trading.
Robert Bumbalough's Trading Plan
1. PURPOSE, USE AND SCOPE OF TRADE PLAN
1.1 The purpose of this trade plan is to provide structure to my Forex trading activities. I need a structured approach to Forex trading to maximize profits and minimize losses.
1.2 The use of this trade plan is by daily reading and continually holding a mental awareness of its content.
1.3 The scope of this trade plan is intended to encompass all aspects of my trading activities and life. As additional needs are ascertained, they will be added to the plan or to addendum's.
1.4 When changes or addendum's are added, the reasons attending will be documented as part of the change or addendum.
2. PSYCHOLOGICAL CONSIDERATIONS.
2.1 My comfort in trading is not a factor. Comfort is an emotion. Emotions have no place in trading. I use self-talk, NLP, meditation, self-hypnosis, and brain wave entrainment to alleviate emotional motivations from my assessments of market conditions and to improve my overall mental fitness for trading.
2.2 I have no emotional stake in the outcome of any trade or position or plan. Trading is not about being right or wrong; its about making money, so I don't care if I'm right or wrong. I only care about making money, so I only care about obeying the rules of the trade plan and section 16 setups.
2.3 I continually strive to improve my capacities to craft winning trade plans, trading in general, and my own mental fitness for trading so that I always and only enter trade positions that comply with and are in harmony with the specifications of the setups listed in section 16 of this trade plan.
2.4 I trust my ability to craft or produce quality trading plans.
2.5 I know the market is the decider of whether my plan or positions have merit. If the market rejects my trade, then I calmly accept the small stop out loss. If the market approves of my plan, then I ride that trend or move for maximal gain using the principles and techniques of the money management section.
2.6 What is important is the monthly win-lose ratio. I keep my losers small and my winners big. There does not exist a means to predict market actions that are yet to occur; therefore, there is not right or wrong trade. Instead I view trades as to whether they comply or do not comply with section 16's setup parameters. The edge of the trading plan setups used and listed in section 16 causes my winners to be bigger and more numerous than my losers, so I only trade when the odds of making money are on my side.
3. THE REASONS WHY I WANT TO TRADE FOLLOW.
3.1 I am a good man. I deserve financial security and an abundance of money. I want to trade because doing so complies with, is consonant with, and is in harmony with my basal foundational identity as a noble, heroic being. I am alive. I live for me. Trading is a means whereby I can express my love for myself and my life.
3.2 To secure financial security for retirement and to get my money back. I need the $33,000 that I lost in 2001 on penny stocks. Forex and Futures leveraged trading can recoup my prior losses.
3.3 Provide me with funds to establish retirement financial security and to pay for current expenses.
3.4 Trading is cool. I am the sanction for my own life and that I desire something is sufficient reason for me to work hard to obtain it. What others think matters not.
3.5 Trading is hard and challenging. Its noble and heroic to overcome difficult challenging tasks. I am a noble and heroic being. Therefore it is proper for me to be a trader. I understand that there is no easy money to be had in the markets.
3.6 As a longer term goal, I would like to be able to someday write a book about trading techniques. The intellectual aspects of trading can be packaged and sold to a large market of others who seek trading excellence. Thus I, by virtue of my innate characteristics, can seek to fulfill the wants and desires of others for quality trading instruction.
4. MY TRADING STYLE
4.1 I am a short term swing and manual trader who will establish long term trend following positions that are free of risk. In ranging markets I use range scalping tactics to skim whatever profits are there.
4.2 In trending markets I use trend following tactics to obtain maximal gains by riding the trend for all I can. I use the bread and butter technique to establish a risk free runner position.
4.3 In the future, when I have a LLC Hedge Fund Trading Business, I will incorporate hedging with futures and options.
5.1 My strengths as a trader is my ability to control myself and to discipline myself. My capacities for self control and discipline are founded upon my strong sense of self esteem. I love, honor, admire, cherish, respect me. I am the reason for and sanction of my life. Therefore, I always follow the trading rules and only take trades that comply with the specifications listed in section 16's setups.
5.2 I am very keen on market and trading education. I continually strive to learn all I can on trading and proper psychological mindset favorable for trading.
5.3 A strength I employ in trading is continuous introspection to self check for errors and non-compliance with the rules.
5.4 Additionally, use of positive NLP, self-talk, meditation, self-hypnosis, and brain wave entrainment to reprogram myself to continually increase my self-discipline and drive for excellence make me an ideal candidate for trading success.
5.5 I have made a commitment to do what it takes to become a success. I'm willing to study charts or learn new trading methods so I'm always ready for changing market conditions.
5.6 A further strength is that past traumatic events caused deep and profound mental damage to me. One of the self-defense mechanisms that has evolved in my species is the ability for the mind to fragment into multiple personalities where one or more sub-personalities occurs at the unconscious operational level. This has happened to me. My inner child selves and unconscious self personalities will assist me in maintaining discipline and objectivity in adhering to the rules of this trade plan because they know that our deceased loved ones, our Mother and Father, our Aunts and Uncles, our Grand Parents did not leave us because they disliked us. Instead our loved ones abandoned us because they died. They could not help it that they died. Death finds us all and will someday find me and my inner unconscious personalities. But between now and then, we can make a great deal of money by always and with out fail following the rules of this trade plan. My inner unconscious selves know that I love them and that I respect them. They understand that I have high esteem for them and for me. They know that I have a total commitment and am doggedly determined to provide the best there is for them and for me. We live for us. We are the sanction of our life. We share the same brain and the same mind and are one. We will always and without fail only trade in accordance with the setup's parameters listed in section 16.
5.7 I am strong because of my unstoppable self-esteem. I love me unconditionally, so I always and without fail treat myself with love and affection, gentleness and kindness, and respect and honesty. Consequently, I only do those things that people who love and respect themselves, who esteem and honor themselves, and who are gentle, kind, honest, and affectionate towards themselves actually do. One of those things is to always protect and grow my capital and to always trade according to this trade plan.
6.1 I tend to become emotionally involved in the trade.
6.1.1 To correct this I instill a post hypnotic suggestion that the market is the arbitrator of my trade plans and that my attitude in any trade is that I always and without fail adhere to and obey the rules of the trading plan and setups listed in section 16. The high probability setups I use cause my positions to be profitable 70% to 80% of the trades taken. 20% to 30% of all trades will be stopped out for small losses. No trade is taken unless there is a clear 2 to 1 or better reward to capital exposure ratio.
6.1.2 To ensure, I am not emotionally involved in any position, I physically write a check to the market for my stop loss prior to establishing a position. If the market rejects my entry and stops me out, then that is to be expected 20%-30% of trades taken. If the market accepts my trade entry, then it will reward me because the setups I use and that are listed in section 16 cause me be in positions where the odds of making money are in my favor 70%-80% of all trades taken.
6.2 I tend to form opinions on what the market will do when I should let the market tell me what it is doing. To correct this, I use a self-talk/self-hypnosis script to plant and reinforce post hypnotic commands to remain disciplined and objective at all times, I’ll make more intelligent trading decisions and avoid making trades based on anger or revenge by following the market.
6.3 A further weakness is that I over analyze a potential trade entry. I must respond quickly and automatically to what I see and have courage and conviction to act on my trade plan's entry criteria.
6.3.1 To correct this, I use a self-talk/self-hypnosis script to plant and reinforce post hypnotic commands to act automatically quickly and decisively in all cases where market action comports in harmonious consonance with this trade plan's section 16 setup parameters.
6.3.2 To reinforce my commitment to always and without fail act quickly, decisively, and automatically to enter trade positions where I have a 70%-80% chance of making a profit, I enter into and make a contract with myself and my unconscious personalities to always operate by this trade plan's trade position entry rules.
6.4 My weakness as a trader comes from emotionally fearing losses stemming from positions attendant to the trade or the instrument resulting in violations of the trading rules.
6.4.1 To correct this I use a self-talk/self-hypnosis script to plant and reinforce post hypnotic commands to accept small losses as part of the cost of doing business.
6.4.2 To reinforce my commitment to always and without fail accept that small losses are part of the cost of doing business, I accept the back testing results of Timothy Morge, Robert Miner, Thomas Bulkowski, and Mircea Dologa.
7. MY TRADING CONDITIONS:
7.1 I only trade when I am rested, feed, not sick, and not distracted by work, wife, or pets. I will not trade when, I'm tired, or sick, or hungry, or distracted by work, wife or pets.
7.2 I am guided by my trading plan. I only take trades that comply with the setups being used and listed in section 16 of this trading plan. The plan will save me from making trades that are poorly conceived and executed.
7.3 I do not eat meals at the trade station.
7.4 I do not turn the computer on during sleep time, nor do I take trades while getting ready for work in the mornings.
7.5 I do not trade unless I am fully awake, dressed, and am ready for work. Trading is work and I always treat it as such.
8. REWARD TARGETS: My initial reward targets for my training account are set at 1% per month increase in the amount deposited in the trading account.
8.1 The daily and weekly targets are dependent upon market conditions. It may be the case that there are no trades on some days or weeks. Reward criteria is secondary to entry and exit considerations.
8.2 During training, I will not expose more than 1/4% of my capital in any single trade or 1% of my capital at any one time. For an account with x trade units that means I size the position based on the stop loss such that I can only lose .25% of x units on any trade that complies with the setup parameters.
8.3 After training and when trading a fully funded account, I will not expose more than 1/2% on any single position or 2% total at any one time.
9. ANNUAL GOALS:
My annual trading goals are in several areas. Financial , trading and market education, and personal mental development.
9.1 My goal financially is to double my account yearly by making a monthly 6% gain.
9.2 My goals are to read 8 good trading books yearly, 1 good webinar per week, and to keep up with numerous trading trainer web blogs and youtube.com videos daily.
9.3 I use positive NLP, self talk, self hypnosis, and brain wave entrainment meditation daily to enhance and improve my mental fitness for trading, my discipline, and my commitment to this trade plan as it is currently as of that time amended.
9.4 On a daily, weekly, and monthly basis my goal is to thoroughly document, journal, and review all my trades to determine what worked and what went wrong. That information will be utilized in a feed back procedure to adjust various aspects of this trade plan to achieve maximum profitability.
10. MARKETS TRADED:
I will trade the Forex market in the EUR/USD, USD/JPY, GBP/USD, USD/CAD, USD/CHF, EUR/JPY, EUR/GBP, ASD/USD pairs.
10.1 My goal for the future is to have a futures and options trading account where I will trade E-Micro Forex and E-Mini S&P futures contracts and FX options for hedging purposing.
10.2 Whatever market I trade, I will always comply with the money management and capital exposure rules established by this trade plan.
10.3 The particular currency pair traded will depend on a currency heat map assessment of which pair is most active. The watch list contains the Forex majors. When major moves in the exotic currency pairs are anticipated by the news providers I follow, then they too shall be on the watch list.
11. TRADING PLATFORM: I will continue to use MetaTrader 4 with the lowest cost and most reliable and easy to use Forex broker I can find. This choice will be updated every three months to best take advantage of competition between Forex brokers. I will use Forex Peace Army broker reviews to initially assess which broker may be most appropriate.
11.1 In the course of future events when my trading business is operational as a Hedge Fund, I shall use the best available and affordable trading platform and data feed.
11.2 For the present and during training, see article 11 above.
12. DAILY PRE-MARKET ROUTINE:
12.1 I review yesterday's trades.
12.2 I review the trading plan and rules.
12.3 I perform a self-hypnosis trance session wherein I reiterate my post hypnotic suggestions to always honor my stops, to sequentially scale out of trades applying profits to pay for stop losses in order to eliminate capital exposure, and to build my self-esteem and to strengthen my commitment to obeying the trade plan.
12.4 I scan for the currency pair that has been most active.
12.5 I review the economic calender and economic news daily prior to initiating any trades.
12.6 I check the data from any trading club, signal or alert service I may be using prior to initiating any trades.
13. My daily Hour by Hour Schedule. (This section assumes a full time trade for a living effort. I am not able at this time to do that. The main effort of my trading activities are to train, become educated, and configure my mental trader psychological stance.)
13.1 I work every day to improve myself in terms of trader psychological adeptness, trading skills, setups, charting techniques, and market knowledge.
13.2 I use self-talk, NLP, self-hypnosis to implant a strong desire to get up an hour early at 4:30 AM to have extra time to study.
13.3 During lunch at work, I do a self-hypnosis session and recite the trader's positive self-affirmations.
13.4 During drive times, I continually say out loud the self-talk positive traders affirmations.
13.5 When home in the evenings, I quickly get my accustomed chores accomplished so as to have time to study trading books or to view online trading educational content.
14. CAPITAL EXPOSURE, TRADE AND MONEY MANAGEMENT
During my Forex trading training period, I trade demo accounts and a Nano account for fractions of pennies to minimize losses and preserve my capital. As my skills improve, I will in an incremental fashion increase the amount of funds exposed in a trading account. The incremental factor is to be determined by my overall financial health.
14.1 My permanent fixed policy towards exposing my capital to potential loss consists of the proposition that my capital must be protected and grown using only high probability trading techniques. I will only enter into a trade if the probability of success is 70% or greater.
14.2 I am adverse to exposing my capital to potential loss. I seek to minimize exposure whenever possible. I sequentially scale out of trades applying profits to pay for stop losses in order to eliminate capital exposure by entering with 3 lots and using first and second take profit targets each time setting stop losses to break even. The third lot is a capital exposure free lotto ticket runner.
14.3 During my training, my total capital exposure allowed for any single position is 1/4% of the total of my account capital. After training, that will be upward revised to 1/2% of the total of my account capital.
14.4 My total capital exposure in any one sector or for all trades open at any one time is not to exceed 1%. During training maximum capital exposure for all positions open at any one time is not to exceed 2%.
14.5 When I am trading for a living, I shall employ multiple brokers so that if one crashes and I cannot close open positions, the other will be available for hedging purposes.
14.6 There are two computers available. If one goes down I will use the other to manage trades in the most appropriate manner. All computers will be operated from uninterpretable power supplies and are to be backed up daily.
14.7 I have the broker's phone numbers and can contact them to close trades if necessary. The numbers are listed in the mobile phone speed dialer.
14.8 Setups will be monitored for effectiveness and tracked in a spreadsheet along with trades. If a setup proves unreliable it will be replaced with another that has been shown to work.
14.9 I only take scalp trades if there is an identified potential reward to potential loss ratio of at least 1.5 to 1. In all other trades, I will only enter if the ratio is 2.0 or greater.
14.10 The success ratio of a setup is defined as the ratio of number of successful to unsuccessful instances in back testing. See section 14.1 where a success ratio of at least 70% is established.
14.11 Tim Wilcox's Trading Plan Template section 10.8 details a definition of Reward to Risk Ratio. This statement makes that definition part of my trading plan.
14.11.1(To determine the risk-reward ratio, we need to know the ‘Success’ ratio or probability ratio described in 10.7, above and the ‘Sharpe’ ratio. The latter is the average number of £££'s made on profitable trades, relative to the average number of £££'s lost on unprofitable trades. To express this as a percentage, divide the average £££'s gained on profitable trades by the combined figure of the average number of £££'s gained and lost and then multiply by 100. For the sake of argument, let us suppose that we have a Success ratio of 2:1 - i.e. a probability of success of 66%. Additionally, we also have a Sharpe ratio of say, 1.5:1 - so that if we risk £40.00 we stand to make £60.00 on the winning trades. The Success ratio tells us that we win 2 out of every 3 trades and the Sharpe ratio tells us that, of the 2 winners, we make 2 x +£60.00 = +£120.00. Our one losing trade of the three costs us -£40.00. On all three trades we risked £40.00 and ended up with a net gain of +£80.00. Therefore, if we divide the net gain by the amount we risked, we arrive at a risk-reward ratio of 2:1. However, a word of caution: all of this assumes that we only trade the setups defined in our plan and that they have been thoroughly back and forward tested to determine their probability of success.)
14.12 Stop loss orders will be positioned below penultimate swing lows for long trades and above penultimate swing highs for short trades. If that is not feasible, then stops are to be set ATR(21) of next higher time frame. In either case maximal capital exposure per trade will be honored. If the stop is too expensive, then I will not take the trade.
14.13 During training, if I lose 1/2% of the account capital or have two losers in a row, then I will stop trading for the day. All the day's trades will be reviewed and fallacies will be exposed, so I can learn what went wrong. Setups will be amended if necessary.
14.14 During training, if I lose 1% of the account capital or have 4 losers in a row, then I will stop trading for the week. All the week's trades will be reviewed and fallacies will be exposed, so I can learn what went wrong. Setups will be amended if necessary.
14.15 During training, if I lose 3% of the account capital, then I will stop trading for two weeks. All the past week's trades will be reviewed and fallacies will be exposed, so I can learn what went wrong. Setups will be amended if necessary.
14.16 In the event of a large draw-down, I will only credit additional funds to my account with ‘spare’ money that I can afford to lose. I will not commence trading again until I have identified the cause of the draw-down and have re-tested the strategy to ensure that it meets my profit objectives. When my trading equity exceeds the amount I need to trade my strategies, I will withdraw the surplus and use it to pay bills or to fund a long term investment account.
14.17 As the account grows, I will scale up position size to increase profits while staying within the capital exposure limits.
14.18 Position sizes are determined by capital exposure limits in the case of very high success ratio setups. For 70% success ratio setup position size is cut back by 1/2.
14.19 I physically write a check to the market for my stop losses prior to establishing a position to alleviate my emotional involvement with the trade via potential losses.
14.20 Potential reward is determined by distance between entry price and Median Lines, their parallels or warning lines, or by daily floor pivots, or by Fibonacci retracement/expansion ratios, or by chart pattern targets as described in Thomas Bulkowski's book “Encyclopedia of Chart Patterns”.
14.21 I am accountable to the bottom line and for my performance.
14.21.1 Any losses I incur will be paid back to the trading account from money I do not need to pay expenses
14.21.2 I am accountable for my performance in obeying the rules of the trading plan. Any violations will be dealt with by correcting my trading psychology and commitment to obedience and discipline by methods listed in section 2.1.
15. EXIT TECHNIQUES
15.1 Exits are determined by market conditions. If the conditions for a profitable trade have dissipated, then the position is to be closed immediately.
15.1.1 Profits are to be protected by trailing stops strategically placed relative to market geometry. Stops are placed where stop will be protected by limit buyer's or seller's orders.
15.2 One third of position is to closed at first take profit target. That may be a support of resistance price, a pivot price, or a Murry Math Line price, Median Line price, ect. Stops are adjusted to break even on remaining lots after first take profit to remove capital exposure.
15.3 Second third of position is closed at second take profit. Remaining position's stop loss is moved to entry price to lock in profits and to ensure there is no capital exposure. This is a runner lottery ticket position. Trailing stops are used as profits mount. Those stops are placed under or above penultimate swing lows or highs where there are limit buyers or sellers that will protect the stop. This is to enable the position to run for maximum gain.
15.4 If a position fails to move in my favor within three time frame bars, it will be closed.
15.5 If a position moves close to the first take profit and then reverses, stops are to be set to break even. If it is then stopped out for no loss and if setup entry conditions still prevail, a reentry stop can be place above or below the penultimate bar prior to the stop out bar.
16. SETUPS: Trade positions will only be entered if market actions complies with the setups described in this section. (REFER TO THE PUBLISHED MATERIAL: THIS SECTION WILL BE ELABORATED AND DETAILED AS TIME PROGRESSES.)
16.1 I use Andrew's Pitchfork Median Lines as taught by Tim Morge on his medianline.com and marketgeometry.com web sites and as taught by Dr. Mircea Dologa in his book “Integrated Pitchfork Analysis.”
16.1.1 Trades are always taken in the direction of a high time frame's trend and potential entries are filtered using red-green/blue signals of the Signal Bars and Stochastic Bars indicators, momentum, support and resistance.
16.1.2 There is an 79.5% frequency probability that price will either reverse or zoom through when it meets a median line, its parallel or warning line.
If price shows VSA reversal characteristics at the line, then it is likely to reverse with a 79.5% probability of obtaining the next ML, MLH, or Warning line. At that time I shall take a position consisting of 3 lots with take profits and stop loss established as follows.
16.1.3 Take profits are set by market geometry. TP1 will be the penultimate swing high for a long trade or low for a short trade. TP2 will be the 50% line between the reversal ML/MLH/WL and the next pertinent line. TP3 is located at the target line. Each time profit is taken it is used to pay for the remaining position's stop loss such that SL is then set to break even so capital exposure is eliminated.
16.1.4 Initial Stop loss is established with a discretionary number or pips beyond the penultimate swing low/high for long/short trades. Factors controlling the number of pips are volatility and ATR and bar spread size. If the initial stop results in a capital exposure of more than (1/4% during training – 1/2% after training)of total capital, then the trade is not taken.
16.1.5 If price action zooms the close by line, then it is likely headed for the next MLH or WL or 50% quadrature line. If momentum and volume are showing continuation then a stop entry with a stop above or below the most recent previous bar is set in place.
16.2 I use the methods of Robert C. Miner as explained in his book “High Probability Trading Strategies.”
There is a high probability that price will reverse at a value that is coincident with confluence of multiple Fibonacci levels.
Traded are filtered as listed in section 16.1.1.
If price shows VSA reversal or continuation characteristics at the line, then it is likely to reverse or continue respectively.
16.3 I use the trend following trading techniques taught by Wayne Mcdonell of the FX Bootcamp trading club.
For a bear trend, the following conditions must be met to consider entering a trade.
The higher time frame stochastic is embedded oversold or trending towards oversold, and the 14 bar SMA is below and well separated from the 48 bar SMA, and price is under the THV CORAL moving average, then when price bounces on the 5 or 8 bar LWMA on the 1 min chart a short trade can be entered.
For a long trade, stochastic is to be embedded overbought or trending towards overbought, and the 14 bar SMA is above and well separated from the 48 bar SMA, and price is over the THV CORAL moving average, then when price bounces on the 5 or 8 bar LWMA on the 1 min chart a short trade can be entered.
Additional filters can be discretionary used.
If Woodies CCI gives a confirming signal with the trend, then greater confidence is available. Rigid adherence to capital exposure control as per section 14.3 and essential discipline must be and are continually maintained.
16.4 THV TRIX crossover and or MACD divergence signals in the same direction as a higher time frame trend can be used for confirming entries according to sections 16.1, 16.2, 16.3.
16.5 I use Peter Bains techniques as taught in his FX Mentor club videos on Youtube and Moneyshow.com.
16.5.1 MACD neutralization in conjunction with harmonious overbought-oversold and momentum conditions if observed when a potential AB=CD pattern would result from price trend continuation is a partial condition for taking a trade.
16.5.2 If the prior conditions in sections 16.1, 16.2, 16.3 would be met by the continuation, then a trade may be taken.
16.5.3 Strict capital exposure control as listed in section 14.3 is to be maintained.
16.6 I use Gartley patterns on the H4 and higher TF to find high probability, approximately 80% successful, entries.
In MT4, I use Gartley, ZUP, and Search Pattern indicators to find harmonic patterns.
Entries are taken at the optimal Fibonacci Ratio price for the pattern if volatility is low and VSA and momentum are showing reversal signals.
Entries are aborted if price bar spreads are too large, if volatility is too high, if price fails to obtain most optimal Fibonacci Ratios.
16.7 Setups are found by visual inspection of FX charts.
16.8 Entry Signals are generated by price action consonant with the setup parameters.
16.9 Stops are set to break even as per section 15 above to protect the capital and the position from being closed due to market noise.
17. TRADE REVIEW, RECORDING, JOURNAL KEEPING
17.1 All trades are to be recorded. Charts for entry and exit are to be saved and stored in a document file.
17.1.1 I use NLP, Self-Affirmations, Self-Hypnosis, and Brain Wave Entrainment Meditation to implant and reinforce post hypnotic commands to obey the rules of this trade plan including section 17.
17.2 After the trades are closed they are to be reviewed for favorable and unfavorable occurrences. Lessons are to be distilled from the charts and documented in the trade record document. What went right or wrong is to be ascertained and noted.
17.3 Thoughts about my mental stances and attitudes are to be noted as journal entries in the trade record document.
17.4 Trades are to be rated by compliance with the setup used for entry and exit and the trade plan's specifications for capital exposure control and money management.
18. TRADE PLAN DISCIPLINE COMPLIANCE
18.1 I use NLP, Self-Affirmations, Self-Hypnosis, and Brain Wave Entrainment Meditation to implant and reinforce post hypnotic commands to obey the rules of this trade plan and to strengthen my resolve to adhere to the trade plan.
18.2 Setups are back and forward tested prior to actual use in a live account. Success ratios are determined and documented prior to live trading with real money.
18.2.1 I will learn to program in mql4 language so I can modify EA programs to enable back testing.
18.3 IF I BREAK THE RULES, I WILL STOP TRADING AND FOCUS ON WHY I BROKE THE RULE. I WILL THEN WORK TO ENSURE NO FURTHER LAPSE OF DISCIPLINE HAPPENS.
19. ESSENTIAL TRADING RULES
19.1 My main goal and highest priority is to protect, grow, and preserve my capital. When in doubt, stay out. I Always obey the trading rules. I am mentally disciplined such that I always obey these rules.
19.2 I only take entries in accordance with the technical setups used and described in section 16. I look before I leap. I do not form opinions based on fundamental factors. I never trade on emotions.
19.3 Never ever chase price. I always let the market come to me. If I miss the move, so what. Another will be around soon enough. I plan my trades and trade my plan.
19.4 I Always use a stop loss and a take profit limit. I open trades with estimated and identified 2 or better to 1 reward to capital exposure ratios.
19.5 I Always close losing trades immediately.
19.6 Allow profits to accumulate and winning trades to run. Close winning trades only for technical reasons.
19.7 Open a trade with three lots. When one pays for the others stop loss, take its profit and move stop loss to break even to ensure there is no loss.
19.8 I do not let myself be shook out in the first few moments of a trade, nor do I second guess myself as the setups are clearly defined. I trade what the market is indicating and not what my opinion may be. I strive to avoid having an opinion about what the market will do in the future.
19.9 I only take an entry when it complies with entry criteria of the setup being used and described in section 16. I always trade with the trend in a trending market and use range trading techniques in ranging markets.
19.10 Beware of head fakes. See 19.9 above. I establish profit targets using Fibonacci ratios and extensions in confluence with support and resistance, Murray Math lines, daily, weekly, monthly pivots as well as Median Lines, Median Line Parallels, Warning Lines and Quadrilles.
19.11 Always look for divergences to indicate a short term trend reversal and for neutralization indicating trend continuation.
19.11.1 Check the TA, Trend Lines, and Fibs prior to entering a trade to determine if entry is optimal.
19.12 Stop trading after a loss. Take time to learn what went wrong and learn to never repeat the same mistake. I never chase my losses, and I do not trade for revenge.
COMMON FOREX TRADING MISTAKES:
20.1 Risking Too Much: There is no way of getting rich quick in forex trading. I must be consistent and disciplined, and I am. Forex is not gambling. Any funds I invest in forex are those that I can afford to lose. I am a successful forex trader, and I protect my capital, and therefore instead of risking too much and hoping for it to turn into a goldmine, I focus on good entry techniques and understanding of trend.
20.2 Over-trading: I know that in order to make huge profits I do not have to trade all the time. It is important for me to realize that forex market is volatile and changes direction all day long. I do not expect profitable trades from every price movement. It is very easy to get addicted to winnings which can lead to sloppy trading. The opportunity to profit strikes a few times a day and it is my job to figure out when it happens. After each trade, I give myself a time out to ensure that I make right decisions based on my trading plan and not on the luring crave to win again! I ignore market noise; I control my emotions and focus on profitable movements; therefore, I am a consistently profitable trader.
20.3 Errors in Order Entry: To save myself a lot of stress, avoid anxiety and evade losing money, I always take two extra seconds to check that everything is correct before I click!
20.4 I always trade according to this Trading Plan. I know myself and my limitations, so in all trades I avoid that which leads to sloppy emotionally based thinking.
Losing is not the end of the world! There is no such thing as forex trading system that works 100% at a time. I can become rich by being right only about 10% of a time. I expel the perfectionist out of my mind and open myself to a larger picture. The most important thing in forex trading is win/loss ratio. It doesn’t matter how many times I win or loose; what really matters is how much money I gain when I win and how much money I loose when I have a losing trade. I concentrate on monthly profits, and not on every single trade.
20.6 Ignoring Money Management: Money management is very important in forex trading. The purpose of money management is to protect me from risking too much and therefore grow my profits in a stable, consistent manner. Without a proper money management technique, I can empty my trading account with a few bad trades. I close losing trades immediately, and I always and without fail practice a ruthless regime of capital exposure control.
20.7 Ignoring Psychological Issues: Psychology is a big part of forex trading. I train myself to control my emotions. I deal with losses and understand that success does not depend on every trade. I keep a journal and record the trading outcome, my feelings and emotions during the trade. This can helps me to analyze myself and avoid, overtrading, overleveraging, revenge trading, greed trading, ego trading etc.
20.8 Using too many indicators: Simplicity is the best way in forex trading. Many indicators only add chaos and unnecessary information. I use sufficient indicators to determine trend strength and momentum at range reversal points. I use trend lines, moving averges, synchronicity of Fibonnaci level in confluence with daily floor pivots, Murry Math lines, but especially Median and associated Lines. I keep it simple to avoid paralysis by analysis.
20.9 I do not hold positions during major new releases. It is close to impossible to predict how the market will react to the news.
20.10 Using Too Much Leverage: I do not over leverage. I always comply with the rules of the capital exposure and money management section. Too much leverage can be extremely harmful. Having a small trading account and making big trades using leverage can turn into a complete disaster whenever the market moves against my positions by just a tiny swing.
20.11 Demo Trading An Amount I Don’t Have: I only demo trade with a quantity of fantasy points roughly equal to what I really trade. I treat my demo account as if it were a real account. I use self-hypnosis to modify my thinking and emotions so that I feel the same about a demo account as I do about my real accounts.
20.12 Switching Strategies Like Pair of Gloves: I do not jump from one strategy to another upon experiencing losses. My forex strategy is not discarded if it experiences a draw down. Every strategy need time to be optimized. Success ratios are tracked and evaluated for appropriate use in the then occurring market conditions.
20.13 There is no shortcut to Forex market knowledge. I must learn and expend the effort to train myself. I read, learn, practice and analyze all the time in order to be up to date and make profits. Forex trading is a lifelong learning career. Since forex market is complex and very flexible, a lot of learning is needed in order to adopt to new changes and become a skilled trader.
20.14 Ignoring Stop Loss: Ignoring stop loss is a no-no! I always have a clear entry and exit plan. Before I enter a trade, I know my loss limit and my first and second take profit targets. I plan my trades and trade my plan. Prior to taking a trade, I understand the reasons for entering a trade in the first place. I always stick to my plan and always set stop-loss targets. There is no such thing as a “trade of a life time”. If I miss one, there Is always a set of new trades right around the corner!
21. Structure of the Trading Business
21.1 My trading business is to be structured as a Hedge Fund that is operated by a Nevada registered LLC Corporation. I will work as a self-employed contractor for the corporation.
21.2 The principle and majority share holder of the corporation is to be a Living Family Trust that functions as the fiduciary trustee and executor of my estate.
21.3 Quarterly reviews will be conducted to ascertain if the business structure is the most advantageous. Revisions to the business plan and structure will be accomplished and documented upon findings that improvements can be made.
22.1 After I make yearly profits, the corporation will hire a CPA to file and minimize the Hedge Fund's tax liability.
22.2 If there are no profits, I will study the IRS tax code to find the most deductions and write offs for the corporation.
23. Miscellaneous and Errata
23.1 I will not discuss my trading activities with non-traders or with those who are not a member of my trading club or circle. This is to minimize any potential legal liability from losses suffered by those others.
24.1 12/15/09 Added details to entry setups in section 16 in order to have method for use.
24.2 3/21/10 Changed many sections to eliminate contradictions and fallacies, to tighten self accountability, to ensure discipline, and to establish emplacement of proper trading psychology, and added article 14.21 for accountability to bottom line and performance.