An Overview of
Swing Trading Plans
Since the components of a swing trading system are so
interdependent, it is virtually impossible to develop one in
isolation from the others. This sets up a dilemma. Where exactly
do you begin?
Well, the very nature of the trading plan makes it the most
natural place to start developing your trading system. This is
because it touches on all the other components.
On the one hand, this makes it very difficult to complete,
especially if you are new to trading. On the other hand, it does
give you a bird's eye view of what it is you are setting out to
accomplish. This is crucial insight to have in the early planning
stages of any new undertaking. And this is especially true when
writing up a trading plan. For trading plans tend to separate the
serious trader from those just flirting with the idea. Basically,
if your interest in trading holds throughout the arduous task of
completing a trading plan, you have a fairly decent shot at
becoming a successful trader.
At any rate, there are many aspects of a trading plan that can be
completed before you move on to develop the other components of
your trading system.
So what exactly
goes into a swing trading plan?
There are no hard and fast rules regarding the breadth, depth and
style of a swing trading plan. And even less agreement on how the
actual content should be organized. Below is one suggestion as to
what your plan should cover, along with a way of categorizing the
specific content matter so it best reflects the other four
components of a swing trading system.
– give your document a title. Something like "The Rico Cooper
Trading Company." Make sure to use a word like 'company' or
'enterprises' to indicate you are now open for business. No,
you do not have to set up an actual business. This is just to
get you in the right frame of mind. For if you want to succeed
as a swing trader, you must conduct your trading activity just
like a business. This is very important. When you no longer
rely on professional money managers to take care of your money
and begin to do this yourself, you have effectively gone into
business for yourself. An air of professionalism should
therefore permeate your entire trading endeavor, from the way
you write up your plans to the way you actually execute
– put your short-, intermediate- and long-term goals just
below the title in the header of your document. These should
be concisely stated (6-12 words) versions of the goals you
will flesh out in the main categories below. By giving them
such visual prominence, so that they are the first things you
see when you open the document, it encourages you to
immediately assess whether you are meeting your targets.
- Self-assessment: Professional
and Personal Goals – this first category initially
calls for some self-exploration. You should answer questions
like, how did you arrive at this point where you want to
become a trader? How does trading mesh with your personality?
Besides answering such personal
questions, you should also explore how trading relates to any
other professional goals you have for yourself.
- Trading Goals –
here is where hard and fast financial targets should be
stated. But softer, more qualitative ones go here too. For
instance, how often will you trade? Everyday, or just a few
times a week? Are you to trade on a full- or part-time basis?
Will you take part in any professional trading seminars in the
upcoming year, or will your ongoing trading education be
- Financial Instruments and
Resources – today's swing trader has access
to just about any market in the world. Which will you trade?
Will you limit yourself to the US markets, or will you trade
the overseas ones as well? And what will you trade in those
markets? You can chose from among stocks, bonds, options,
futures... and any combination thereof. Then there is the
question of how you will get your information. Will you rely
on your broker (another choice you will need to make) to
provide you with the data you will need to make informed
trading decisions? Or will you open additional (free and paid)
accounts with other companies for these?
- Risk and Money Management
– what is your general attitude about risking your money? What
percentage of your trading account are you willing to lose for
a chance to profit from a trade? What is your objective
assessment of the risks that exist in the markets today? If
the market starts to knock you for a loop and your trading
account is drawn down by a sizable percentage, will you stop
trading? These and other questions must be answered in detail
well before you make your first trade.
In fact, this section of your trading plan must be positively mastered
if you ever hope to
make consistent profits. This might seem strange. What does
managing the risks to your trading account have to do with
profitability? Well, everything.
Here's an analogy: Einstein famously theorized that the shortest
distance between any two points is not a straight line, but a
curved line. This is because space is actually curved. Now, the
space of trading is curved as well. In this space, you occupy one
point and profitability occupies the other. You might think that
towards profitability is the surest way to make profits. But you
would be wrong. This is because you only actually reach that point
by minimizing losses
It's like that guy in the office who tries to be cool. Everyone
knows he is trying to be cool and that is precisely what makes him
so uncool. Contrast him with that other guy who is genuinely cool
because he never strives directly for coolness.
The lesson here is to never think about profits while trading.
Instead, always think about how best to protect yourself from
losses. Profit, in a sense, will take care of itself. Provided, of
course, you have a good trading strategy!
– a rough outline of
what is covered in greater detail in your main trading strategy
document. The first order of business is to clearly define your
tradable universe. If you are going to trade stocks on the US
markets, are all 7200+ fair game, or will you use certain criteria
to narrow down the list of potentials to a more manageable number?
Within this stock universe, what must happen to signal you to
execute a trade? And how long will you maintain the open position?
Until either a preset loss or profit threshold is reached? Or will
you let profits run?
- The Daily Routine
– even at this early stage you should begin to envision what
your trading day will look like. If you intend to trade
part-time, will you analyze, manage and set up your trades in
the morning before you head off to work, or in the evening
when you return home? If you intend to trade full-time, will
you continually monitor your open positions, or will you
automate exits so most of your day is spent searching for new
- Trading (re-)Assessments
– this final category reminds you that a trading plan, just
like all the components of a trading system, is never
completely finished. It is a living, breathing document meant
to be continually updated as you learn more and as market
conditions dictate. Even though you will have thoroughly
tested your strategy before live trading, you should always
reflect on what that real-world experience is teaching you.
What improvements could be made to your strategy and what
further tests could be run to confirm them? Cultivating a
self-reflective stance is critical to your progress as a swing
trader. This can be encouraged by keeping a trading journal
where you regularly record your thoughts, feelings, hopes and
dreams about trading.
Trading Plans Template ⇨