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Chapter 29, Part III. Dealing Directly With Trading Plan (Finally!) Page 9

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 27, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Also I would like to share with you a bit extended trading plan that involves different possibilities to trading and application of multiple time frames. Here are the major points of this plan:

    1. Money management and mental/psychological control;

    2. Market mechanics;

    3. Trend estimation and direction that we intend to trade;

    4. Overbought/oversold analysis;

    5. Entry rules and technique;

    6. Exit rules and technique.

    Each of these points demands some education and experience:

    1. For example, how you can apply mental and psychological control to yourself, if you even have not started to trade yet? Here you need some experience to understand yourself a bit. What is your endurance limit, how much you can trade without significant rest, and how much time will you have to rest and so on. On money management initially you can apply relatively simple rules – something like we’ve specified earlier. Later you can read some books on that topic and apply some more efficient technique.

    2. We’ve spoken about market mechanics already. If you will trade on a daily time frame and higher you will not need a deep knowledge of it. But if you intend to trade intraday, even on very short-term charts – you will have to study it, since you will collide head-on with market-makers and dealers. So, you have to know what games could be played around significant levels, order executions etc;

    3. Depending on your system here you have to estimate the overall direction that you have to trade with. It forces you to have some system of trend identification and overall direction. For instance, if you trade MA’s – then you will apply rule of penetration to identify trend. This also could be another indicators instead – MACD, Parabolic SAR etc. Also you may filter it by additional limitations. For instance, you want to see not just a MACD bullish trend but some thrusting move. Beside trend indicators, you may apply some patterns that could overrule the trend. For instance, during a Butterfly, a “buy” is forming, the trend is strongly bearish, but a reversal appears fast, and it could overrule the trend. Another example is Joe DiNapoli directional patterns. He has developed some patterns, “Directional signals” that overrule trend. If the trend, say, is bearish, but the market forms a bullish directional pattern – he trades according to the latter, since it cancels the former. Usually in any trading system of any mentor such issues exist. So initially you may try with some approach that you see as suitable for you and clear;

    4. Here have to specify how you will analyze overbought/oversold. You may apply different oscillators and indicators here. We’ve discussed this in the indicator chapters;

    5. Here you have to specify the rules to enter the market, depending on your system. On the example above with a butterfly we’ve shown this. This is a very important point, because it also relates to money management and stop-loss placement. Usually it tightly links with trading method or system that you are applying. Specific combinations of different indicators and methods could demand a different approach in entry technique, as well as profit targets estimation and stop-loss placement;

    6. Exit rules suggest profit target estimation and stop-loss placement and moving.

    If want to see how you could use this trading plan on practice – visit our education forum page and read any weekly thread.

    As you can see, a trading plan is a much broader term than just a market analysis method that you will apply. Analysis method contains points 3-4 and partially 5-6. The trading plan itself is just a part of your overall plan – such nested doll…

    Pipruit: I see. But now it becomes much clear for me. ​

    P.S. This lesson was written by Sive Morten, who has been working for a large European Bank since April of 2000, and is currently a supervisor of the bank's risk assessment department. Sive's knowledge of forex market and banking industry is vast and quite complete. If you have any specific questions about forex, banking industry, or any other financial instruments, please post them on the next page and Sive should answer soon.

    Note: FPA ranks are earned in the battles against scam, not in the classroom.
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