Winning is a Habit: Building a Trading Framework
This first series I have called…Winning is a Habit!!!
What do I mean by that? What I mean is that ultimately it’s your habits that create your results.To win you need to have winning habits.
In this series, in each blog post, I want to give you a number of different actions that that you can immediately start to incorporate into your trading.
You can start these things straight away, even tonight or tomorrow. This post is focusing on Building a Trading Framework.
This is like your business plan for trading. You should spend the time to write it down. When you write something a whole new commitment to the process takes place.
So this is a written plan of all the different components that make up your own trading style.
It needs to address three key elements:
1. Indentifying the trend.
2. Choosing the right strategy.
3. Money management rules.
It should Answer Questions like:
What type of stocks are you going to trade? Are you going to trade just the biggest companies on the Dow Jones or are you going to trade the guys that make up the S&P500? Or, Do you like penny stocks on the bulletin board?
If you are trading options then what type of options strategies will you use? Will just buy and sell put and calls? Will you use spreads, covered calls or other types of combinations?
What will help indentify stocks in an uptrend or down trend?
What indicators are you going to use? Moving averages, Stockastics, Macd’s, Bollinger Bands, Volume, price movement?
Will you use Fundamentals as part of your analysis or just use charts and technical analysis?
If you do use Fundamentals, what are the key ones you look for? Is it PE ratios, earning results, current debt or market capitalisation?
How much money will you allocate to trading?
How much to options? How much to any one single trade?
What are you prepared to risk on any one trade?
When will you cut your losses?
When will you take a profit?
What time of the day will you watch the market? What time will you trade?
How often will you scan for new stocks?
You need to know the answers to these types of questions. These and more all need to be part of your trading framework.
They are the Guiding principles that help take out some of the emotions created by traders who simply don’t have a game plan and are more related to gamblers rather than traders.
Fear and Greed run the market. If we have a trading structure it allows us to think independently of the herd mentality of the market. That’s not saying we going to trade against the trend. We always make the trend our friend, but it is saying we can independently make our own decisions based on our own trading structure and our own framework; not on what other people are saying or doing.
Once you have a written trading framework, you then need to focus on implementing it into your trading routine. As you go, you can fine tune it but it is important you don’t just throw it out after a short period of time, give up on it and just go and try something else.
It takes time to build your framework into a routine that you trust, you believe in and which becomes automatic behaviour, or in other words ….. a Habit.
Simon Says – Winning is a Habit.
