TraderDoc’s M.A.S.T.E.R. Plan

Markets: What markets will you trade (stocks, options, futures, currencies)? It is best to focus on a small list of trading vehicles than try to trade everything. Know what you are good at and stick with what has worked for you.

Allocation: How will you allocate your trading capital to the different markets? Within a given market, how will you allocate your capital for each trade? You need to know how many shares/contracts you will buy and sell to fit your risk parameters.

Strategies: What strategies will you use to trade and on what timeframe? Are you swing trading over a few to several days or just going in and out on an intraday basis? One should have specific trade setups for each market and know in advance what setups you will look for and trade. Each strategy should be specific for what price event triggers the trade and what indicator signal will confirm the trade.

Trade Management: Each strategy should define the entry, stop, target(s), and exit. Will you scale in/out of positions or go all in/out? Will any of your trades be discretionary?  The stop loss order is a key to risk management—be certain you enter your stop immediately after you enter a trade. How much risk will you take per trade, and how is this determined? How will you define your price targets (momentum, support/resistance, volatility, etc)? What will keep you in a trade or get you out?

Emotion: The plan is nothing without the discipline to follow it. Write down what emotional discipline is necessary for this plan to work. Does the plan put into effect rules which counteract your worst tendencies and build upon your greatest skills? How will this plan take the thrill out of trading and replace it with a sense of accomplishment and personal achievement?

Reassessment: At what intervals will you reassess your capital allocation and risk parameters (monthly, quarterly, yearly?). If you have a drawdown, how will you change your capital allocation and/or risk? If you generate significant profits, how and when will you readjust your capital allocation or take profit (all, partial) and put it away in a risk-free account? At what intervals will you readjust the trading plan (quarterly, yearly)?

 Master traders succeed because they follow a trading plan. The New Year is a time to look back at the last year’s trading results and make plans for a new and more profitable year of trading. Make the necessary adjustments to your plan based on how the plan performed. A trading plan is a contract with “yourself” to follow a given set of rules established in the plan. The plan should be tailored to your individual goals (trader, investor, both) and distinct abilities. Remember you must not only master the plan; you must master yourself in order to achieve ultimate success. It is important to be completely honest with oneself about past performance before positive change can take place.