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Swing Trading Plan Template

These 3 pages pose a series of 30 questions with model answers, organized into 7 categories.

It can serve as a template for your own swing trading plan.

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The Sonny Burnett Trading Company

Short-term: to develop and implement a swing trading system by month 20xx
Intermediate: to become profitable via swing trading by month 20xx
Long-term: to generate a consistent yearly income via swing trading

III. Financial Instruments and Resources

Which markets will I trade?

I will trade the US stock markets (NYSE, NASDAQ) during the day session (M–F, 9:30–4:00 EST) because I enjoy my evenings and weekends off.

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 (e.g., those with an average daily trading volume greater than 10 million shares), and having a market cap greater than $10 billion.

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?

TradeKing will be my broker. [UPDATE: TradeKing is now Ally.com] Their trading platform is web-based and comes in two versions, an older version and the newer TradeKing LIVE . 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 entry procedure.

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 done elsewhere.

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, StockBackTest.com, MarketInOut.com, or develop an alternative methodology. For general market data, I will use CNBC.com. For pre-market and after hours quotes for specific stocks, I will use Nasdaq.com.

For intra-day stock price quotes, I will rely on TradingView for their streaming real-time data from BATS (using FreeStockCharts.com as a backup), as well as TradeKing's Streaming Quotes. 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. [UPDATE: TradeKing is now Ally.com]

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 J. Murphy and Victor Sperandeo.

I will also watch up to a half-hour of TV-cable business news during the weekday evenings.

IV. Risk 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 total.

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 system.

My maximum exposure to any one sector will not exceed 3 times my maximum exposure to any one stock, or 6%.

Total exposure to the market will be kept below 70% of my trading account (e.g., 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 (e.g., 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 (e.g., 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 (i.e., 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.

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