You might see two other trader’s plans accidently or on purpose, and think to yourself, “those plans look almost identical.” They do look that way, but believe me when I say that no matter how identical they look, they ARE different. If not in word, in meaning. So keep this in mind as you proceed.
To do this right, you are going to do a little bit of work, and also will need some help for others. Hopefully you got the thumbs up from one or more members of the community, validating that your setup was consistent and that you are applying complete logic.
From your last five trades or so in level 2, you should be able to get a picture of one or two setups that represent what you do well. Here’s how I did it.
First I looked at the most recent five trades (that have complete logic), and looked for what was consistent and what was the application of complete logic. I usually found one picture to best
represent this. It doesn’t matter if it is a losing trade. It doesn’t matter if it is an odd pair like the AU or NU.
The main thing is that this picture represents what you see best, making good decisions. I just took this picture from a trade that one of our level 2 traders took yesterday. You can see the 30 minute chart on the top. You can see the 5 minute chart on the bottom. From this picture and the details he wrote above, he would have all of the information he needs to create a trading plan. The most
in terms of the information at the top. The rest of the information is on the chart. I can see the trend, the advance, the fib drawing, the entry and exit prices, and so on. I’ll be giving you a list of questions to answer.
So this is what you need to do. Find a picture of a trade that has the following information, and which you did consistently.
Trading in the direction of the trend Trend is advancing
New Wave Fib is drawn correctly Minimum ROA is met
Entry and exits reflect what you “usually do.” (previously used the word consistent)
If you are a member helping another member with their plan, you need to be looking for this, too.
What you want to do is choose a picture, and then post that picture in your forum, and ask for help from other members. What the other member will do is look at your picture, and go back to your level 2 work, and see if they agree that this is the trade you should use. Stay
with this until you feel like you have agreement. It’s okay to take a good week for this
process, though it is possible to get it done in much less time.
I’m just saying not to be in a hurry. If you get this right, you will be ahead of the game. Get it wrong, and you will be wasting a lot of time.
You have a horse in the race. In other words, you have attachments. You are hoping to make money doing this. You might be hoping to do this sooner than later. You might have emotions distorting what you are seeing. This makes it difficult to be objective. The member’s only motivation is to help you like someone else helped them. So it is best to get this third party validation. You’ll have more real confidence in the process if you do.
Remember that confidence comes from experience that is validated.
Okay now, if you have that part done, then you are ready for the next step. The “top” of your trading plan will look like this.
Vance Williams 6/15/15
Golden Rule: Follow Your Rules
If you discover a mistake let your stop or limit hit May note change a rule during a series of trades One trade at a time (add these three to the top)
I had a rule: “share your trading plan with no one.” It would be very difficult to make a program that is community support without you publishing your plan. As I said, in my personal coaching program, traders never saw a trading plan until they made one of their own. But that’s just not practical with a self-study program with an important community dynamic.
By far, the most difficult part (of the plan) to define are the entry and exits (entry, stop loss, target), and this is not really that difficult. It just may require a series of back and forth questions and answers to arrive at the best rules to begin with.
Okay here are the questions. You want to look at the picture that was chosen and answer these questions in your personal forum: (feel free to number these)
What hours are you going to trade (should be same hours as your trade)
Which currency pairs are you going to trade? You get more practice if you continue to include the AU and NU, but this is up to you
Which charts are you going to use, and for what purpose? I would keep this simple for now, sticking with the 5 minute and 30 minute. Perhaps adding the 1 minute for fast moving market. But know that “fast moving” will need to be defined by you in the future (note that not everything needs to be defined now. In fact, there are good things you are probably doing that you are not even conscious of yet).
How do you determine the trend direction?
What is your minimum range of advance? Is there a maximum? What risk to reward ratio did you use in this trade?
In this next section, you will have three different areas of rules. The “order” is not important. But you need to determine “why did you choose that entry point? How did you determine your stop loss? How did you choose your target?”
For some traders, they go right to their stop loss or target first. For others, it depends on the setup. You can also use words like “solve for entry” or “solve for target” or “solve for stop” if you are actually doing that.
What is your maximum risk to equity? I suggest a maximum of 2.5% - I think this
may be the first time I’m saying to do this in the book. There is a later chapter which has “risk to equity” in part of the title. Please review that chapter.
After you have answered all of these questions, there is one more thing for you to do. Go back to the last 5 trades you took and answer this question:
Is there anything else you were doing consistently in your trades which did not get included in this process?
If there are things you are watching for, such as high impact data, or even nuances you are watching for, put those under the plan.
Just do the best you can.
As a member who already has a trading plan, if you are helping someone with this, what
you are really doing is making sure that the trading plan is complete, and making sure that you understand what they are saying in the plan.
Remember that they are already trading good logic. You are just helping them to define
how they made those decisions.
If their answer to their entry rule is too long or unclear, ask them to explain, and include a different picture if it helps. As I said, the entry and exit points are usually where you are
going to need the most clarification.
And sometimes traders overcomplicate the process. For example, their stop and targets are well defined. Yet there is a paragraph explaining the entry, and the entry might be a simple as “solve for entry, 38.2 or better.” That’s the entire rule. It’s saying that you can enter anywhere you want, as long as price has pulled back 38.2 or more.
You might have 2 entry rules, or 2 stop rules, or 2 target rules. Before I give you an
example, I want to remind you that this is not about “trading.” This is about “YOUR trading.” Maybe you like the stop loss beyond 76.4, but if there is a strong former support or
resistance, it’s okay to just put the stop beyond the barrier, even if it is not beyond 76.4. You’ll know just by looking at your trades.
And maybe this is something you do later after a review as a result of your experience. Always remember that changes in your trading plan are based on a series of trades,
and changes are made based only on your experience. There’s that rare underline
again.
Validate that you have it Right
Give this process whatever time it takes to get your plan defined. Do not let someone else choose the words for you. They can suggest ideas, but you really need to look at what you did, look at the words you are choosing, and say, “Yes, those words define what I did.” There will come a point when this process will come to a close. The more advanced traders will keep an eye out for a plan that is not coming together and use some of their expert skills to help out, even calling on me if necessary. So do not worry. You will get the help you need.
As much as I don’t want to say this, the next step is to publish your trading plan in your forum. I would suggest you make a note of the page, and include that in each trade you
take (I’ll put this in procedures).
The very next thing you do is PRINT and HAVE YOUR TRADING PLAN IN FRONT OF YOU WHEN YOU ARE TRADING. Underline AND CAPS? You need to be going line by line over your trade. I’ll talk about that again in procedures. Some traders are under the false impression that they have their plan memorized. They probably do, but when
emotions like greed, carelessness and fear enter, the memory does not work so great. Go
line by line for each trade and you will achieve your goal faster.
Building a New Neural Network
When you are following your plan, you are learning to make decisions in a different way. You feel emotion when you win or lose because your defense systems are triggering fear when it looks like you could get hurt, and euphoria when it looks like you have been vindicated of all wrong doing in your life (ha).
So there is a “system” triggering emotions. Your brain needs to learn that this type of decision making is normal. This takes time. Your brain is actually made of neurons. If you do something like follow a trading plan, a new network of neurons is formed. If you keep reinforcing that neural network with practice, eventually, the myelin with cover the nerve endings, turning the network to gray matter (physical brain). That’s the gist of it anyhow. The goal is eventually to create a “new normal.” Right now losing 4 trades in a row is painful. But in time, your brain will learn that this will not kill you and that it is perfectly normal. So in the meantime, you will need to be patient with the swings of emotions. Just realize that these feelings are just “information.” The purpose of this information is to help you navigate. Since you are flying in new territory (so to speak), you will need to learn to allow these feelings to pass. Remember the marshmallow, and a powerful principle: there is no growth without suffering. If that sounds too harsh, put it this way. You don’t grow stronger muscles without tearing the existing muscles. If you are going to become good at Forex trading, you are going to be challenging yourself to grow. The best tip I can give you is from physics: “for every action, there is an equal and opposite reaction.” Our natural
tendency is to push away or run from discomfort. What would happen if you went towards the discomfort and welcomed it? I’ll let you find out for yourself.
My mentor always says that “when people finally turn to face their demons, they find a pack of puppies.” In my experience, this is true.
Coming up next is procedures. I’m going to keep this very simple for you at this point. But
you need to follow some procedures. In this way, you have the information you need to
effectively evaluate a series of trades. Often traders take 5 weeks to complete the series. When we get to the evaluation, we just have no idea what was happening around a particular time in a trade. Perhaps a 30 minute chart was just zoomed in too far. So procedures are VERY valuable, and as I said, I’ll do my best to keep them very simple. Okay on to the next chapter on procedures!