Traders Need Game Plan to trade profitably

“Experience has proven that success follows the wise trader/investor who identifies an effective strategy, and has the discipline necessary to carry it out,”

There are two key elements that distinguish the successful trader from the unfortunate majority: strategy and discipline.Many traders take positions “based on impulse, hunch, or what they read from a newsletter–instead of reason–and then wait to get lucky. They have not learned or probably even thought about the fact that even the very best traders consider themselves fortunate to be right on most trades, or even to make significant profits during most years.”

“If the trader will take the time to plan his trades properly, he can possibly have the odds on his side in the long run, which is something few gamblers could ever attempt to achieve. Over the long term, those traders/investors that are still operating in the markets–and who have followed a carefully thought out and well-defined plan in a disciplined manner–expect to have favorable results,” said Tirone.

The basic elements of a trading plan should provide the reason for logically entering and exiting a position, whether it proves profitable or not. “Once a position is entered, the price can only take three paths: rise, fall or remain unchanged . . .”

“The heart of a game plan must indicate, unequivocally, how the trader is to exit from a trade he has entered.” Likewise, this critical area consists of three parts:

1) accepting losses if a position shows adversity;

2) a plan for accepting profits; and

3) a plan for exiting a trade if the price, over time, is negligible or does not meet expectations.

Exiting from a trade that shows a loss is best done with a stop that is implemented at the time the trade is executed, said Tirone.

Trading plans may be mental or written, but written plans are best, said Tirone, as they are more likely to be followed by the trader.

In a written trading plan, traders should include: markets traded, long or short positions, risk exposure per trade, total portfolio loss (not win) if wrong, and commissions paid. Also, considering each trade on its own merits may result in having a number of positions all long or short, and the risk exposure thus being heavily skewed in one direction (even if it may be the correct direction).