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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?

the five components of a swing trading system (with plan highlighted)

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.

  • Title – 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 trades.
  • Goals – 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 cartoon of someone making a soccer goal 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 entirely self-directed?
  • 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 heading cartoon of a cool guystraight 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!

  • 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 opportunities?
  • 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.