Trading plan statements – Developing consistency in action and measurement

A written trading plan, usually comprising of several guiding action statements, serves the following two invaluable purposes:

1. Facilitates consistency in trading action e.g. in the entry and exit of trades, allowing the trader AND
2. Measures the strategy used specified within each statement to make an evidence-based judgement on how well these are serving you and test and amend these statements so you can develop an individual trading plan that may work better for you.

Let’s move past the fact that many traders choose not to have a plan at all, an approach that goes against what is one of the key components of giving yourself the chance to become a successful trader, to those who have a plan in place already. This article is targeted a those who have made the logical choice to have some sort of written plan in place.

Great though having a plan is, many traders still have issues with the two purposes outlined above. They still fail to some degree to develop the consistency described and are not really able to measure effectively.

A common problem, if we look closely at some of the plan statements used, is that such statement may not be specific enough, have some ambiguity, that means that those purposes may be difficult to achieve.

Let’s provide and work through an example for clarity (we have used something generic that applies to all trading vehicles).

Consider the following statement…

“I will tighten my stop/trailing stop prior to significant, imminent economic data releases”

Firstly, on the positive side again, this does demonstrate an awareness of potential risk and a desire to have something within your plan to manage this risk.

However, in terms of being a measurable statement that you can make a judgement as to how well this approach is serving you, there are the following issues:

1. What does ‘tightening’ mean in practical terms in relation to current price point of the chart you are trading?
2. How close to a data release is ‘imminent’?
3. What constitutes a significant data release (amongst the many that are released daily)?

So, to take the previous example consider the following as an alternative:

“Prior to imminent economic data releases, I will tighten of a trail stop loss for any open trades, 15 minutes prior to the release and to within 10 Pips of the current price (or course this can be adjusted to points or cents dependent on what you are trading). This will be actioned for the following data points:

1. Interest rate, CPI, industrial production and jobs data from the country of either currency pair (or Germany, France of across the Eurozone if one of the currency pair is the EURO).
2. US and Chinese PMI manufacturing data, GDP, industrial jobs and interest rate decisions as these may impact all currency majors.”

So, with THIS amended plan statement the following elements could be measured (if journaled appropriately of course):
What would the difference be in your trading outcomes if:

1. No tightening had been actioned.
2. If a different proximity to current price is used e.g. 15 rather than 10 Pips.
3. If other data releases are added/removed.

With this level of measurement, possible with the revised statement, one would now be able to make any changes, backed up with evidence, to your trading plan.

Alternatively, of course, you could make the choice to do nothing, retain statements such as the original, and not have the ability to create the richness of evidence to make considered amendments to your plan.

Logically ask yourself the question, “which choice is more likely to serve my trading going forward?”