Always Go In With A Plan
Once an individual adopts the right mindset and is willing to sacrifice his time and effort into the trading business, he needs to create a plan. There are very few successful businesses that do not follow some kind of strategy. The author says that trading is a serious business that involves real money. There is no reason for a person to get into it without a well-thought-out plan of action.
Firstly, define the objective followed by a road map of how to achieve it. The plan or strategy will be constantly evolving depending upon the feedback one gets from the data recording and analysis.
However, the rules should be objective and fixed from the research and prior backtesting and tell what information tells otherwise.
- Position size must be determined.
- Evaluation of capital allocation must be done. How long to invest and over what period?
- Some form of trade risk management needs to be defined.
- If the position moves against the view, where will the stop loss be placed?
- Will it be a trailing stop loss? Have the fundamentals changed?
- Not forgetting how to sell to lock in profits? Will it be a fixed percentage? Will it be a certain chart pattern?
All these factors must be taken into consideration before placing a trade. Once the trade is complete, it needs to be recorded for the continual analysis and continual optimisation of the strategy. Once this process is mastered one can reach their objectives and become king of the trading business.
Throughout the entire process, Mark underlines the importance of capital saving. One must limit his losses on each position which will ultimately protect the trading account. If a person takes too much risk in any individual position, he will risk losing the game and ultimately, his capital. Having a plan will help protect the capital base, encourage discipline, and provide a foundation for continual analysis. According to Mark, he defines his parameters ahead of time just to establish a basis for knowing whether his plans are working or not.