Plan=Structure and Plan your Losses
Posted by Spang67
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Plan=Structure and Plan your Losses November 22, 2014 05:50AM |
The two biggest contributions to my recent trading have been a couple of the take-away messages from Market Maker's Edge, The Disciplined Trader and What I Learned Losing A Million Dollars:
(1) You have to have a Plan to change "trading" from a never-ending process in the market to a defined one, more analogous to gambling, with a structure that provides a beginning and an end. In my case this is my Stop Loss and my Take Profit. This helps to remove my "brain" from the in-trade process.
(2) First and foremost, you have to "plan" for your losses and see them as the cost of doing business, like paying your insurance bill, and realize that taking a "loss" is not the same as being "wrong".
To that end I have created a risk-reward ratio (R3) calculator that I use to plan my trade and trade my plan. My current loss is set to 1/2 my average profit or less than or equal to 10%.
Here's a screenshot of the R3 of my most recent trade. Trend was Weekly, Decision was Daily and action was the 21-min or 10E chart with MFI. My exit was a little sloppy as I should have gotten out on the big bounce at the open, so I left about $200 on the table, but still a "good trade" per my criteria.
ADDENDUM: The input fields are the yellow for the option and price targets, and the gold fields for my MO-MENTUM signals, (which I stole from rookie30!) and the trade calculations at the bottom left.
Edited 5 time(s). Last edit at 11/23/2014 06:02PM by Spang67.
(1) You have to have a Plan to change "trading" from a never-ending process in the market to a defined one, more analogous to gambling, with a structure that provides a beginning and an end. In my case this is my Stop Loss and my Take Profit. This helps to remove my "brain" from the in-trade process.
(2) First and foremost, you have to "plan" for your losses and see them as the cost of doing business, like paying your insurance bill, and realize that taking a "loss" is not the same as being "wrong".
To that end I have created a risk-reward ratio (R3) calculator that I use to plan my trade and trade my plan. My current loss is set to 1/2 my average profit or less than or equal to 10%.
Here's a screenshot of the R3 of my most recent trade. Trend was Weekly, Decision was Daily and action was the 21-min or 10E chart with MFI. My exit was a little sloppy as I should have gotten out on the big bounce at the open, so I left about $200 on the table, but still a "good trade" per my criteria.
ADDENDUM: The input fields are the yellow for the option and price targets, and the gold fields for my MO-MENTUM signals, (which I stole from rookie30!) and the trade calculations at the bottom left.
Edited 5 time(s). Last edit at 11/23/2014 06:02PM by Spang67.
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