I read Joe Ross’s chart Scan Newsletter, and he mentioned some considerations when looking/designing setups. I find it to be useful.

• Do I see something that happens frequently, at least as often as often as I want to trade?
• When the event or setup takes place, does it offer me the range of movement I need to be profitable?
• Where would I place my protective stop, and how often would it be hit?
• Is the daily range sufficiently large that I can get the ticks or points I need to make money?
• Is there sufficient volume at this time of day for me to easily be filled?
• Do I get decent fills in this market?
• What kinds of orders can I use to accomplish what I would like from this setup?
• Am I able to find more than one setup in this time frame, and how well can I answer the questions already asked for each setup?

I read some trading bloggers mention “If you can’t trade well in stocks/ETF, then don’t think about trading options or futures”. And comes to comparison why trading ETF is a better choice to trading futures or options. blah blah blah. It is really a BLAH.
Well, it sounds logical and right. However, I am giving another thought of this. I think something is missing here. OK, I have never traded Options before, so I am using Futures trading as example.

Why should I trade QQQQ first before I start trading NQ futures? It makes no sense to me. Absolutely. ETF and futures are different games, though we are trading something similar and related by nature. Yes, futures trading comes with leverage, which is always thought as a double edge sword. But, I don’t see any difference when an ignorant trader who doesn’t care/doesn’t know about risk management trades stocks or futures or even options. The result will be the same. It comes to my old saying : I don’t need to know how to play table tennis before I start learning tennis.

The key point is, when you start trading one instrument, be it stocks, futures or options, you should focus on it. Work extra hard to understand the rules of game, play it. master it , and even kiss it. If the instrument you are trading comes with leverage, then think about how to utilise it, be disciplined. Is there a real advantage if your are profitable in stocks trading and start trading futures? I don’t think so, in fact, I saw more failure than others. Maybe there is, but, I don’t see it as significant. Profitable stocks/ETF trader failed in derivatives trading, most of time is because, they are focusing on the excitement of leverage that derivatives trading brings, and forget about the increase of risk involved. The most important thing is, don’t try to jump around differrent instruments before you have put in effort and master it.

You can do a comparison of instruments when you have mastered them and traded them for a period of time.

Next time, if somebody again stops you from learning futures trading because you’ve never traded stocks, it just because he himself is a loser in futures trading. It doesn’t matter which instrument you are trading, it all on depends on one element, YOU.

ah..just another piece of random rant from me.

Here I am presenting the template of my trading plan (it is more on the execution plan per se). I don’t see a point to reveal my trading plan here. It does not help any reader, since it is designed ONLY to suit my personality, risk appetite etc. I guess a template of my trading plan makes more sense. Shoot me comments or question if you feel something has been left out.

Entry
This is the point that you pay to buy something or sell short something with expectation to collect profit later.
This is the only place your holy grail system works. At this level, your holy grail trading system tells you where to enter the trade. Some people like to call it proprietary system, since they never wanna share their magic method. Whatever it is, it just an entry point. Read more, you will realize it is just one of the component of your overall plan.(So, why do people spend thousands to buy entry signal? Anyway, none of my business).

Position sizing
R , R , R, R, R. How much you can afford to risk? Go to do some research of position sizing. There are different theories and methods on this topic. Some self-claimed risk-taker utilizes high leverage to trade big number of contracts. Some conservative folks only trade 1 contract per 10K account. Whatever it is. No right or wrong. As long as it fits YOU (I mean your pocket size, stomach etc), then go for it.

Minimum profit target
This is designed after reviewing my own experience. Do not trade without a profit target. It doesn’t make sense to me to have a profitable position and end up with a loss. I trade for money. So when money is in my pocket, I will try to protect it. I use minimum profit target as a decision point that I will at least get a break even result. Any profit beyond this point is a bonus. But a loss after achieving minimum target is absolutely nonsense.

Trailing stop condition
I know a number of traders do not trail stops. No problem with that. Again, there is no right or wrong in this business. You do whatever you feel it is right according to your plan. There are so many ways to catch a fish in the river. The purpose of trailing stop is to protect profit. After achieving my minimum profit target, I will start trailing stop.

Something to note when trailing stop: At initial stage of a new position, it is better to give some breathing space to your position (i.e Do not move your stop too early). For example, maybe I will just let my position to gain 2-R then I move my stop to break even point instead of locking profit at 1-R now. However, I will turn aggressive in moving trailing stop when position is moving fast and with bigger gain. For example, when I am gaining 4-R on paper, I will trail my stop to 3-R or even 3.5R. (These R numbers are just for illustration).
Key point here is, start slow, and be aggresive when having bigger profit on paper.

Hard exit condition
This the point that you MUST exit your position (even though your wife or your mum say NO).
I will have my stop loss order keyed in immediately after establishing a position. (Some people prefer a mental stop, it is fine). Stop loss is the last protection when market is not moving in your favor.

Secondly, It is important to have a plan to exit the position when it is “going nowhere”. For example, in day trading ,when a contract is stalled at certain price level for 5 to 6 bars, I would exit the position. Why hold on the position when it is not moving?

Ok, that’s all. This is the template of my trading plan. Of course, I am refining it along the way. So far, it is working for me.

Back testing is tough, back testing is boring. Back testing is #$%^&. No doubt. But while I was looking back charts, programming codes, ideas and thought flowing into my mind.

I was having some thoughts over the process of developing my trading system. At the earlier days when I first started Dummy trading, I simply jumped into a trade as long as a valid dummy spot appeared. I can’t say that was right or wrong. But by trading this way, it reduced the expectancy and accuracy of my system (well, I thought I did have a system! lol). When you have a system with positive expectancy, chances are you will be profitable in the long term. But when you have a system with low accuracy, you will have a tough time fighting with yourself to handle the strings after strings of losses (even though they were just small losses!). I had a discussion with Dave on this topic recently as well.

I decide to have a look at the core element of dummy trading. TREND. Yup, basically, I am looking to buy pull back or consolidation within an established trend. During the choppy day, I will be bleeding. I will be better off if I can analyze the current trend before I establish a position. Again, I can spend the whole day drawing lines, calculating moving averages, but day trading requires fast and accurate decisions, so , it will be helpful to have something built to reduce number of decisions I need to make during trading session.

I have drafted out a high-level chart to illustrated my work now.

My task now is developing a Trend Evaluations system. Of course, by no mean, this is a holy grail. It might be just a Moving Average crossover system, drawing some lines or just an ADX calculation system etc. No rocket science. It just to assist me to understand and see the TREND in a faster, and handy way. I am trying to find a method that will keep me at the right side of the market, (well, of course, it can’t be 100% accurate, at least, it put me at the high probability side of trade) regardless of what other system rules (such as Dummy) I might be following. So the end result will be, I have a “system” that takes a position as soon as I find a trend and then exits when the trend is over.

The reason is, if I start from a basis where I am already on the right side of the market, then whatever entry and exit rules I superimpose on my calculation of trend SHOULD only continue to improve my results.

Well, work is still in progress. Just to share something that I am currently doing, and I hope it helps me to grow as a better trader.