Novice Speculator Trading Plan
by John Sweeney
When all the waiting is done and a new trade is signaled I can at last, get to work. However, it's not to
burn up the wires to Chicago — it's paperwork that needs to be done, before the job even starts!
Actually, if things are working right, I'll be making out my trading plan a week to two weeks ahead of the
trade. Then it gets a yellow paper clip and goes into my pile of daily logs awaiting execution—right next
to the paper trades (white paper clips) and the trades under way already (red). Then, as I update the daily
action, it's a simple matter to check the plan to see if things are unfolding as foreseen—or not!
Why make up the trading plan in advance? Why even make up a trading plan? Answering the second
question should answer both questions.
I've seen trading plans seven lines long and I've seen them six pages long, but the people who use them
know them to be essential for two things: Discipline and Framework. Discipline is needed to make
them, refer to them, and follow them. Just as important, your plan puts a framework on a topsy-turvy
world, a world where you sometimes wonder if up is still UP or not. The framework is your version of
what's happening and what indicators you are following to prove it.
A lot of folks aren't inclined to plan anyway. They'll say, "I've got a hunch," or "The news is bullish," or
"I've got to get in on this move!". Then, they'll think "You can't predict the future anyway, so why waste
time and pretend by making plans?". Nevertheless, it's essential to make an estimate of what is to happen.
That estimate is your strong foothold in the constant sea of price changes and opinions. If as time passes,
your estimates are (let's hope) right, then you gain more and more confidence that you are in tune with the
markets and with the majority of decisions being made at the margin. You can then trade as if you knew
what is to happen because, should something happen that you did not foresee, you know by the variance
from your expectations that you are out of touch.