Making a Plan

If you’re going to succeed at trading spreadbets, you absolutely need a trading plan. Having some kind of method or system is only one component of your trading plan. A plan is an overarching approach which also takes into account factors like timing, context, money management and more. Here are some factors to include in your own trading plan:

  • What will you be trading? Spreadbets are available for stocks, futures, sectors, bonds, and much more. You need to decide what kinds of markets you want to trade; every market has its own quirks, the cost of spreads to trade it, and other factors.
  • What timeframe will you be looking at, and what timeframe will you be trading? Are you going to be placing long term trades? Intraday trades? Intraday trades? Will you look at monthly, weekly, daily, or hourly charts? Will you look at even smaller intervals? How many levels of time frames will you look at for a given trade?
  • What is your method going to consist of? Will you be trading based on fundamental or technical analysis? What indicators, if any, will be on your charts? What are your entry and exit rules? Where will your stop loss and target profits be? Is your method going to be discretionary at all?
  • How are you going to work out real life factors like sleep, work, and so on? Will you be using alerts? Will you be trading at a personal computer, or on a mobile device? How much time do you have available and on which days will you watch the charts? Some of these factors will influence your actual trades more than you might think. Using a demo account is a good way to iron out these details.
  • What’s your money management plan? How much of your account will you be risking on each trade?

Finally, your trading plan will need to account for some less obvious things. For instance, what will you do when you’re in a losing trade? What will you do if you have x number of losses in a row and need to pull out of the market for a while? How will you reward yourself for trading well and sticking to your plan? What will you do when the market changes and your method needs adjustment?

I hope that you have done some thinking about the sort of strategies that you will be following with your spread betting. Whatever you decide now can be changed at any time, of course, but you do not want to flit around trying different ways without spending time to get to know each, and if the strategy you try first fits you and makes money, you may not even want to implement any other.

I’ve already given you part of your general plan, when I outlined how you should shortlist down each week those securities that are going to be of interest to you and may fit in with your strategy. Your plan will include an outline of your weekly and daily routines that will make sure that you identify the bets you want to make, keep a check on open positions, and take your profits when necessary. The amount of time that you commit to each day will depend on your lifestyle.

Your plan has to be a personal statement of the way you are going to bet on the markets. This may include such things as only making a long bet when the 50 day moving average is sloping up, indicating an up-trend; placing your bet when the RSI is rising and passes 30; whatever you have decided you want to try, that makes sense to you. The plan should be unambiguous, so that you don’t have to make judgements when you have money involved. This is never a good thing, even if you feel that you are able to act dispassionately.

The work plan that you come up with is going to include more than just the criteria and actions that you are pursuing – it’s also going to set out your weekly timetable, so that you have a programme to stay on top of your spread betting, and don’t let it slip away like other good ideas that you may have.

For instance, the weekend is a good time for general management. Download the markets, if you need to, and apply a general sieve to them as I outlined previously, just to be able to concentrate on the securities that might pop in the coming week. If your charting software allows you to group securities into portfolios, then take advantage of that and put all of them where the RSI is less than 30, or the ADX is more than 30, or whatever is suitable for the method you are using. You basically want have easy reference to the stocks that are approaching your betting criteria.

This not only sorts you out ready for the coming week, it can also give you a good feel for how the markets are acting. The next step is to see if any of the short-listed securities are ready for betting on, and identify what would trigger you making a bet. This could be a price target, a candlestick pattern, a crossing of two lines, as per your system. If you are able to set yourself an alert for the condition, so much the better, but in any case you will know what to look for during the week.

As the week progresses you will monitor these daily, and also check on your short-list to see if any other bets are getting ready to be triggered, and need to go on an alert list.

Once you have some bets in place, there are other factors to be monitored daily. If you are manually exiting on a stop loss price, then it’s obviously essential that you check this daily. It’s also important to monitor progress, deciding whether the price is stalled and you need to give up, or whether the price has met target and you take your profit.

One of the reasons that people fail at spread betting is that they have no plan, and they trade with their gut, which for a novice will usually point them in the wrong direction. Paper trading allows you to get focussed on using a system or strategy, and when you have that as a basis it becomes easier to bet and to modify your betting plan in the light of experience. Remember that “failing to plan is the same as planning to fail”.

Some people will tell you that “building a trading system”, which is one way of describing the effort of making a plan, is far too much work. They will either try to discourage you, or alternatively try to sell you a pre-made plan. I feel that it’s important to have a plan, and while you may discover aspects that you haven’t fully worked out when you start using it, this will only improve it. But as fully as you can anticipate different conditions, you should as it will give you more confidence to actually use the plan.

The key to profiting in the markets is to overcome your emotions, and stick with a method that puts the odds in your favour. A trading plan that you can use will go a long way towards helping you achieve that goal.

Just because a system is defined, and can be automated, doesn’t mean that it should be. The trading robots that are so frequently hyped to anyone who shows an interest, particularly to Forex traders, are limited as they have no innate common-sense, such as a human would. You may have noticed that the same Forex robot providers keep sending you different offers each month. This tells you two things – one, that no robot can give long-term consistent results, and two, that they are not making enough, if anything, from using the robots themselves.

So you need to make yourself trade like a robot, in terms of dispassionate actions, but keep an awareness of what you are doing so that you can work on continually improving and adapting to the market. This is more easily achievable if you have a set of rules to follow.

Writing down the rules makes you think about each of them, and realize its purpose, and how it accomplishes that. It sets out the plan in a form that is more easily tested, as we will see later in this section, and also opens you up to thinking about alternative indicators or rules that you can try if the first ones start to fail.

Most traders systems are never finished, and this is both good and bad.  If you stick with a plan that has been tested, then you should get results similar to the test, and to change the plan to include a different indicator just because it happens to work better during a particular period is a good way to go crazy. But that does not mean that your plan is set in stone, and should not be reviewed for possible improvements.

What do I mean by this? Well, suppose that your system relied on a moving average with a period of 15 days. You might find from testing that 20 days worked better, and that is a significant change that would be worth making. But if you continue fiddling around, trying to “optimise” the value, who knows, the market might change and 21 would now give the “best” result.  You have to take a view of when to let your system run, and when to mess around with it.

If you are tempted to make such small changes endlessly, you may want to take a step back and consider what you are trying to achieve. It is not the world’s best trading system, it’s just a system that makes you money, and quite frankly it is money management that plays the largest part in that endeavour.

What you are trying to achieve with your trading plan is to take bets that are good odds, that you drop quickly if they don’t work out, and that you keep hold of while they are reasonably making you money. Betting is a numbers game, as not all of your bets will work out but you want to average a profit.

This leads to one of the problems with a trading plan. How can you stick with it when presented with a losing bet? Inevitably you want to override the plan, because how can a bet taken when all the indicators were right be losing?

This is where professional traders excel. They are much more likely to stick with their plans than an amateur trader, who will want to exercise judgement in such cases and find excuses to do so. One way to tackle this challenge is to note in your journal, which we talk about in the next section, any time you are tempted to over-ride your system, and what the outcome is when you do. In that way, in a few months you can look at your record and see if your “gut feelings” had any merit to your performance. The chances are that they won’t, but it can give you a clue about how your trading plan could be improved.

Having a great trading plan is not only about your method. It’s about how you will translate that method into success in your real life. It’s also about how you will deal with your failures, and use them to become a better trader.