Short-term goals: to develop and implement a swing trading
Intermediate-term goals: to become profitable via swing trading
Long-term goals: to generate a consistent yearly income via
and Personal Goals
do I want to be a trader?
I want to be a trader because I
cherish the independence of working on my own. While my
current job provides some independence, I will never achieve
the level of independence I desire at my company. I also
question whether I truly want to surround myself with so many
people. Trading would permit a solitude I have come to enjoy.
Trading is also detailed-oriented without overlooking the need
to attend to the big picture. It takes discipline and a
well-planned and well-executed system to make it succeed. It
thus suits my personality. If successful, I will be able to
pursue my other life interests on my own terms. If successful,
I will be able to meet the short-, intermediate-, and
long-term goals listed above. There will also be the
satisfaction that I have succeeded in an endeavor where so
many others have not, and the satisfaction I will have from
knowing others know I have done so.
I also want to be a trader in order to
supplement the income from my current job.
type of trader will I be?
I will be a technical trader. Moreover, I
will be a discretionary trader. This is because I want to make
the final decision of how and what I will trade. In other
words, I will not turn things over completely to a fully
automated, rule-based computer program. This will remind me
how I am the one ultimately responsible for my trades. I will
be a swing trader, holding trades over a period of days to
weeks, with an average of 1-4 days. Day trading and scalping
are not for me, as I am not aggressive but financially
conservative and relatively risk-averse.
In general, I will always strive to be
disciplined trader. I will adhere to and faithfully execute my
trading system which I have planned in detail and thoroughly
tested to be profitable.
are my strengths and weaknesses, and how can they be
One strength I have is that I am
detailed and strive to be exact. But this can also be a
weakness since it often leads to obsessive, repetitive
behavior and prevents me from making a final move. This
final move I even dangerously rush at times because I get
frustrated with my inability to act. Another strength I
have is that I am a logical planner and always do thorough
research. But a weakness is that I cannot stand to lose my
hard-earned money. This has its costs. While trading, I
sometimes want to remain in a losing trade longer than I
should, irrationally hoping against hope that the losses
will magically turn into profits.
I can leverage my strengthens by
recognizing how these attributes contribute to my
confidence that I am on the right path of becoming
consistently profitable. I can minimize the damage of my
weaknesses by taking a final moment to calmly review my
order one last time, ignoring which way the stock price is
currently heading. Once assured that my order has been
entered correctly, I will count to
three and then confidently hit the buy/sell button. I will
also always trade with a stop-loss order in place. Since
this automates my exit, it relieves me from actually
having to hit the sell button. But it still satisfies my
desire to be a discretionary trader since I was the one
who originally calculated where the stop-loss should go.
I emotionally stable enough to handle the stress of
I will remain calm, cool, and collected at
all times while trading. I will only trade when distractions
are at a minimum, and when I am not overly tired or upset. I
will either maintain a proper level of professionalism and
rigorously adhere to my trading system, or I will forgo
trading until I achieve a state of mind free from the danger
of making reckless, emotionally-driven trades.
What are my financial
In the short-term, I am targeting a return
of 20% in the first 6 months. Assuming an initial trading
account of $10,000, this is a return of $2,000. Roughly, this
equates to $333/mth, $77/wk and $16/day (assuming 21
trading days per month
). During this same period, the
drawdown on my account shall not exceed 10% or $1,000.
In the long-term, the targets are the same,
but on a larger amount than the $10,000 initially used to
confirm my trading system is truly profitable.
What are my yearly trading goals?
By this time next year, I will have become
proficient in reading charts for trading opportunities and be
able to easily apply my strategy to them. I will know my
trading system inside and out. I will also develop at least
two additional winning strategies.
What are my monthly trading goals?
To be consistently profitable. This will be
possible because I will review my performance against my
financial targets on a weekly and monthly basis. I will also
study the trading strategies of successful traders in order to
develop my own unique strategies. I will then thoroughly
backtest and paper trade these strategies before committing
real money. I will also study classic stock market theory for
eight hours or more. I will also look for patterns in the
daily entries of my trading journal.
What are my weekly trading goals?
To trade every day the markets are open.
Because my trade exits will be automatic, most of my time will
be spent seeking out new trading opportunities. I will only
trade those stocks which best meet my selection criteria.
What are my daily trading goals?
To make sure I am up at least one hour
before markets open. To monitor and reassess my open
positions. To review and update my watch list with new
potentials. To get a sense for the general direction of the
stock market as a whole. To
new trading opportunities. To execute trades according to my
trading strategy because I know it is detailed and tested to
be profitable. By strictly adhering to it each and every day,
I will ensure my weekly, monthly and annual goals are met.
This can only be done if I dampen my emotions and trade
objectively and with the utmost professionalism. To work no
longer than three hours after markets close. To update my
trading logs, to make a trading journal entry, and to
generally prepare for the following trading day.
Instruments and Resources
Which markets will I trade?
I will trade the US stock markets (NYSE,
NASDAQ) during the day session (M-F,
because I enjoy my evenings and
Which financial instruments will I trade?
I will not trade the shares of just any
stock, but only those with a price greater than $10 and with
good liquidity (ie
those with an average daily trading volume greater than 10
million shares), and having a market cap greater than $10
Which timeframes will I trade?
Generally speaking, I
will let the longer range charts determine the trend, then use
shorter term charts for timing entry and exit points. My chart
analysis will ideally begin with the monthly chart (roughly
spanning 20-years), and then turn to the weekly (5-year),
daily (5-7mth) and intra-day charts.
More specifically, most of my time will be spent on the daily
charts. Weekly charts will then be briefly examined to gain a
broader perspective. Finally, hourly (15-20day) and five
minute charts (1-2days ) will be occasionally consulted to
time entry and exit points. The daily (and hourly charts) will
be used to monitor my open positions.
Who will be my broker?
will be my broker. Their trading platform is web-based and
comes in two versions, an older version and the newer TradeKing
. While the latter is fully functional, it is still
in development. For now, I will use the older version to
mitigate the risk that any functionality rolled-out in the
future for the newer version could adversely effect its order
Where will I get market data?
I will primarily use my broker to execute
trades. Most of my research and market data collection will be
I will use finviz.com
as my stock screener and TradingView.com
for their graphing utilities. For backtesting, I will use
sites such as PastStat.com
develop an alternative methodology. For general market data, I
will use CNBC.com
pre-market and after hours quotes for specific stocks, I will
For intra-day stock price quotes, I will
rely on TradingView for their streaming
real-time data from BATS
as a backup), as well as TradeKing's Streaming
. Once I qualify (by meeting a minimum account
balance and frequency of trades), I will use official stock
market data provided by TradeKing's Quotestream
which includes access to level 2 quotes.
What other resources will I use?
I will continually refer back to my own
testing documentation, looking for ways to improve my trading.
I will use two laptop computers, both
connected to the internet. One will be dedicated to placing
orders with my broker, and one will be used for research.
Using two computers ensures a backup in case one goes down. If
my broker's trading platform or my internet connection goes
down, I can phone in orders.
I will also use sites such as Investopedia.com
for my ongoing trading education, as well as read classic
works on stock market theory by author-traders such as John
I will also watch up to a half-hour of
TV-cable business news during the weekday evenings.
and Money Management
Am I risk-averse or a risk taker?
I am generally risk-averse, as it is my
nature to preserve my money. Although in the heat of the
moment I sometimes throw caution to the wind. To minimize this
risk, I will strictly adhere to my risk management strategies
on all trades, and will attempt to diversify my stock holdings
across different sectors and industries whenever possible.
What risk thresholds will I maintain?
I will not risk more than 2% on any one
trade, with a maximum exposure on all open positions of 6% in
I will also have a monthly loss limit of
6%. If hit, any remaining open positions will be closed and I
will cease trading for the rest of the month. During the time,
I will regroup and reassess my trading
My maximum exposure to any one sector will
not exceed 3 times my maximum exposure to any one stock, or
Total exposure to the market will be kept
below 70% of my trading account (ie
my risk capital). I will commit no more than 20% of my risk
capital to any one stock.
This means that with a $10,000 trading
account, no more than $200 (2%) could be risked on any one
trade. For example, 100 shares at $20 = $2000 (20%); stop is
at most $2 out, at $18; at maximum, I could simultaneously
hold 3 similar trades: 6%, $600, $6000 (60%).
Once I have proven, consistent
profitability and increase my trading account, I will lower
these % rules (eg
instead of 2%, it will be 1% or 0.25%).
What should the reward-risk ratio be?
In order for a trade to be attractive, I
will require the reward-risk ratio to be at least 2:1 (eg
risk $200 in order to gain $400).
What is my trading expectancy?
Since this measure multiplies my average
win by the probability of winning (less my average loss
multiplied by the probability of losing), I need not strictly
concern myself with how often my trades win, or with how large
those wins are. While these statistics are interesting and I
will certainly make note of them, taken alone they reveal
little of the overall viability of my trading system. Why?
Because it is their combination that is of crucial importance.
Therefore, I will only trade if the
expectancy – the average amount I can expect to win (or lose)
per trade – of my trading system is greater than zero.
When will I stop using my trading system, and what happens
if I do?
I will not trade at all if I do not see any
tradable stocks exactly as specified in my trading system.
I will stop trading for the remainder of
the day if I lose 2% of my trading account. I will resume
trading the following day.
I will stop trading and close any remaining
open positions for the rest of the month if I sustain a 6%
loss in any one month. I will resume trading the following
month. But if the second month is like the first, I will
abandon my system entirely and start anew. I will also abandon
my system and start anew if my trading account is drawn down
by 6% or more from its most recent closing high.
In the unhappy event of a large drawdown on
my initial trading account of $10,000, I will credit it with
additional funds. While this is money that, if lost, my
standard of living would remain unaffected, it is NOT money I
'can afford to lose.' If it was, I would take more risks than
I am comfortable with and treat my money as a plaything. It is
not a plaything. It was hard-earned and represents much effort
on my part. It should therefore be treated with respect and
utilized with utmost caution. For if I did lose it all, the
psychological aftermath would be devastating. However, I would
need to seriously consider whether to credit my account after
a second drawdown. In any case, I will not begin trading again
until I identify the cause of the drawdown, and reassess and
retest my trading system to ensure that it meets my goals.
In the happy event that my trading account
exceeds the amount needed to trade my system (ie
I have profits), I will leave the surplus in the account. If
this surplus is large, I will initially withdraw it until I
have a proven record of being a well disciplined trader with
sound risk and money management skills. Once this is the case,
I will use the surplus to increase my position sizes, thereby
compounding my trading account.
What happens in the event I am cut-off from my broker?
In the event that my broker's trading
platform or entire site goes down, I will contact their trade
desk by phone. Since I will use stop-losses, it is unlikely I
will need to close out a position. But I may still want to
enter a new position.
If my broker becomes unreachable by phone
as well, I will begin looking for a new broker immediately.
Because I will use two laptops, if one
malfunctions the other can be used to enter trades. Since my
internet connection becomes sporadic when my laptops return
from sleep mode, the solution is to never put them to sleep
during trading hours.
In the unlikely event that cell phone
reception is lost on top of the internet connection, I will
use the pay phone down the street.
What is my tradable universe?
My tradable universe is defined as all
companies on the NYSE and NASDAQ whose outstanding
shares have a total market value of $10 billion or more, and
trade with an average daily volume greater than 10 million and
at a price greater than $10.
I intend for all my trading strategies to
trade this universe. This is because I am predominately
risk-averse and trading large caps with good liquidity is, all
else equal, safer than trading micro-cap penny stocks.
What trading strategies will I use?
I will trade only one strategy until I am
comfortable and successful with it. After which I will develop
another, completely different, strategy and trade them both.
But I will never trade with more than two strategies during
the same period of time.
The initial strategy I will use is a
reversal strategy to the upside (going long). While this same
strategy can be used to the downside (going short), because
shorting stocks is inherently more risky, I will reserve the
full implementation of this strategy (going long and short)
until a later date.
The initial strategy I will use is what I
call '1-2-3 (long only).' It involves purchasing a stock at
the first swing point low after prices break a downward trend.
What are the details of my trading strategies?
The full details of what my 1-2-3 (long
only) strategy involves can be found in my trading
. In brief:
- I will use Finviz to
screen potentials using the three criteria above (market
cap, average volume, price) and select stocks in a
- these potentials will be
put in my TradingView account where I will annotate their
trend lines and moving average lines
- these potentials will
also be put into my excel spreadsheet watch list
- once prices break up
through the trend line and form a swing point low, I will
enter a buy order with TradeKing
- a sell stop order will be
immediately entered as well
- I will ensure my position
size does not exceed the parameters specified above (ie, 2% upper limit on
any one trade, 6% on all open positions, etc)
- the buy and sell orders
will be documented graphically in my TradingView account,
as well as in my trading log and calculator (an excel
- the position will then be
the price drops, the stock is automatically sold and the
position is closed
the price rises, I will replace the initial stop with new
stops at higher levels in order to further minimize losses
and/or lock in profits
What will I do before the markets open?
I will wake up at least one hour before
markets open to set up my workspace and to review the work I
prepared the previous evening. I will turn on my laptops, log
into my TradeKing and TradingView accounts, open four computer
files (my watch list, my trading log and calculator, my
trading plan, and my trading strategy) and unfile my hardcopy
versions. My open positions will be reassessed and my watch
list will be reviewed for potential trades that day. I will
look at stock market index futures for
indications on how the markets will open. I will note how
the overseas markets performed overnight. I will check to
see if any major news events occurred since yesterday and if
any key economic reports will be released or if any other
major events are scheduled that day. If any of these appear
significant, I will be especially sure not to trade in the
opening minutes in order to gauge market reaction. This will
help ensure I trade what I see on the charts and not
according to what I think should happen.
What will I do during market hours?
I will primarily seek out new trading
opportunities while intermittently checking my open
positions. Stops will be adjusted if need be. As positions
close out, I will update my trading log with the details. A
snapshot (.png) of
the chart will be created at TradingView and filed
away for my records. In this way it can be further reviewed
at a future date. If new positions are to be entered, all
calculations (including how many shares to purchase and where to set stops) will
be made well before it is time to hit the buy button.
What will I do after the markets close?
After the markets close I will
primarily maintain and update my watch list where I rank
potential trades according to how likely they are to meet my
trading strategy selection criteria. If any stocks have a high
probability of being traded the following day, they are placed
on a special list within the watch list. I will also update my
journal, where I will record my thoughts and vent my feelings
about each trade, and draw conclusions about the trading day
as a whole.
During the weekend I will study stock
market theory and play catch-up if I fall behind on any of my
tasks during the week.
Will I backtest and paper trade my trading strategy?
I will thoroughly backtest and paper trade
my trading strategy to ensure it is inline with my financial
targets and is within my risk and money management parameters.
Properly documented, the record of my testing becomes a
potentially valuable resource through which I can improve my
Will I regularly reflect on my trading and record these
reflections in a trading journal?
I will strive to use my trading journal
each day. I will review it monthly to identify potential
problem areas and use it as a source of feedback on my trading
system. For example:
If I find I am too exuberant after
profitable trades, I will remind myself of the dangers of
extreme emotions and how trading must be conducted in a calm
and relaxed manner. After the next win, I will force myself to
take a brief break to ensure I understand how successful
traders need an objective, professional attitude while
If I find I am dismayed after each loss, I
will ask myself if I faithfully executed my trading system. If
I did, then everything is going according to plan and I will
take solace in the fact that losses can never be completely
eliminated. They are the costs of doing the business of
If I find I am lax in executing a
particular aspect of my trading strategy, I will remind myself
of the importance of remaining disciplined.
But if I find I am seriously and
consistently deviating from my trading system, I will suspend
my trading and investigate. If it is a problem of
self-discipline, I will suspend my trading until I am
confident I can strictly adhere to my trading rules. If the
issue is found to lie with my trading strategy, I will only
resume trading once corrective measures are taken. This would
include conducting a new round of backtesting and paper
Will I regularly seek to educate myself about trading?
When it comes to trading, I will be the
perpetual student. I will never be satisfied with the trading
results I have, but always seek instead to improve my trading
system. I will do this at the technical level, by studying
classic stock market theory and the trading strategies of
professional traders past and present. But I will also do this
at the psychological level by studying the personality traits
of successful traders. My goal will be to fundamentally change
my own trading style. What I learn will then be fed back into
future iterations of my trading system, with the hopes that
this will improve not only my bottom line, but also the
enjoyment I get from trading.