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The Winning Day Trader’s Plan

© 2011 Dr. Max Vogt and Day Trader Team

http://www.DayTradingReport.com

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Our disclaimer for this work and all materials, information and tips connected to or generated by DayTradingReport.com can be found at http://www.DayTradingReport.com/disclaimer

In brief, that disclaimer states that we make no recommendations and do not give trading advice. This work is for entertainment and education purposes only. ALWAYS consult a professional if you have any questions about a trade or financial decision, and even then, realize that a final decision is inevitably yours and yours alone. For more details go to the disclaimer page cited above.

Acknowledgements:

I’m grateful to the DayTradingReport.com team that assisted regarding this Report. It’s the fruit of lots of conversations and not a few arguments. Yes, Marcie, I know sometimes the way things are stated here sound rude, but it’s only for your own good… so you can succeed at day trading. Day Trading is not like anything else, and most people have to be shaken into that awareness until they finally get it.

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How to Pick Money off the Money Tree

If you can’t get excited by the financial opportunities available in day trading, you don’t have a pulse. Every day the markets are open, trillions of dollars change hands in a frenzy of competing opinions about the worth of the world’s goods, services and products – in shares (stocks), currencies, commodities (such as gold) and other financial and non-financial activities; there are even some people who make trades (one might say “bets”) about the future WEATHER patterns. It’s like one big money tree and all you have to do is go pick some and you’ll be rich. At least that’s the way it seems to be. Of course it’s not that easy, because as a friend of mine says “if it were that easy there would be no taxi cab drivers.” Driving a cab is hard work. But… The real problem is that in some ways is IS that easy to make money in the markets. You really don’t need any skill, knowledge, education or experience to win a trade. Many people have stumbled into making significant money on investments who knew nothing whatsoever about trading. Will Rogers, the famous American actor cowboy said “the way to make money in the stock market is to buy a stock. Then when it goes up, sell it. If it’s not going to go up, don’t buy it!” This is the same guy who also said “I never met a man I didn’t like.” It’s clear he didn’t get out much.

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On the other hand, the joke about “if it’s not going to go up, don’t buy it” is painfully close to the way people actually do think about trading, when they haven’t developed a real understanding of market trading. It has become remarkably easy and remarkably cheap to execute trades. Now there’s a Buy Button and a Sell Button on every brokerage firm’s trading platform. What could be easier than clicking that button and making money? And to compound matters further, there ARE people who are making money hand over fist through trading, and just like with talented world class athletes they make it look very easy to get extremely rich in a very short period of time. And unfortunately for the rest of us there ARE a very few people who seem to have an absolutely uncanny ability to almost “psychically” read the market and make consistently amazing trades. If you’re not one of those wild-eyed geniuses, though, don’t despair. You can still make a staggering amount of money day trading, if you learn some skills and rules and apply them consistently and with great discipline in your day trading. The key word is “consistency.” As I said, anyone can find himself in a winning trade. Even a blind pig can find an acorn every once in a while. The problem is that “once in a while” is no often enough to produce a consistent income from trading. In order to generate regular and dependable income from trading, it’s mandatory that you have three things:

A reliable, proven system of trading that gives you a reasonable edge in finding and executing high probability trades on a regular basis.

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A mature and focused Trader Mindset A carefully developed Trading Plan

The first two of these are reviewed in my reports “The Winning Day Trader’s Mind” and “Secrets of Winning Day Traders,” which are available on Amazon Kindle ($29.95 each) - or at http://www.DayTradingReport.com where I offer all three of these books for FREE. This report is about the third element, the Trading Plan, which is an absolutely essential part of your trading arsenal – but you must combine all three of these in order to have a Winning approach!

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Trading Plan, Hoary Truths and Reality A popular saying is “without a plan to win, you automatically plan to fail.” Traders use this version “Plan your trade and trade your plan.” (I have some major refinements to suggest to this which I’ll get to soon). To use a simple analogy, a builder needs a blueprint, properly chosen materials, quality tools and a skilled team in order to construct a well-made, safe and appealing building. He doesn’t just start with a piece of bare ground and commence to throwing together whatever he feels like that day to see what happens. The probabilities of his making a building which is beautiful, well-crafted AND which passes the building codes he’s working under… those probabilities would be exceedingly low. If you don’t have a clear trading plan, developed carefully and thoroughly to match your

Personality Lifestyle Goals Expectations Account size Experience level Sleep and wake cycle

… you are going to be out of luck when it comes to day trading. There is no “one size fits all” trading plan. It needs to be 100% customized to who you are and what your goals are.

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What follows in this report is an outline of things to consider and how to put them together in your trading plan. This is to inspire you to create and write out your trading plan, laminate it and keep it with you at all times. I will be so bold as to say if you aren’t willing to do this, you should not consider day trading at all. You’d be better off taking your hard earned money to Las Vegas and lose it while enjoying yourself. Or just take it and flush it down the toilet. Create a trading plan or stop trading.

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The problem with most trading plans I’ve seen a lot of trading plans. Almost all of them suffered from the same illness. They are too long and too complicated and cannot be realistically followed. They contain too many ambiguous and “interpretable” bits of information. Let me give you a couple minutes of brain research. It won’t bore you and it will be very valuable to you for the rest of your life. Your brain is amazing. It can solve puzzles. It loves to solve puzzles. But it freezes up and won’t do anything if you give it confusing instructions. If you give your brain confusing instructions it will sit there and loop upon itself, and you’ll end up feeling crazy. Your brain loves to respond to instructions. But it has to have specific instructions. Now there are two types of instructions it responds to.

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One is black and white action instructions. The other is instructions to mull, consider and reflect. Let me give you an example of each. Black and white instructions can be immediately carried out without thinking about them. Your brain simply generates the signals to your body to act. The stoplight turns red. You stop your car. The stoplight turns green, you drive. No higher thinking is involved. These are mentally low stress instructions which are immediately translatable into action. On the other hand, there are conditions where your brain is Here’s an example of an instruction to mull, consider and reflect before you take action: “Am I really happy in my marriage? Should I stay or get a divorce?” Now the second one – choosing between complicated options – is where most of our life decisions are made… and it’s rarely a black and white, clear-cut decision. The second type – the mulling, considering and reflecting before you take action – is necessary in many parts of your life. However, it has the effect of slowing you down. It requires a lot of you and is very energy-draining. It can be quite exhausting… and can produce ZERO results. Most people don’t reach the end of such decisions easily and thus they are worn down and stressed by the constant, nagging presence of these important but seemingly irresolvable decisions.

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When I was practicing full time as a psychologist in private practice I used to say that 95% of my practice was helping people get to a decision that they had already decided was unsolvable. It’s hard work. Important but hard. AND it’s the kind of work you NEVER want to be doing when you’re trading. You want to reduce all trading activities as close to the black and white/ red light – green light as you possibly can. Do not misunderstand me. I’m not saying you should (or shouldn’t) use SOFTWARE that has red lights or arrows for “sell” and green lights or arrows for “buy” or any other signals on them. That’s a matter for a whole different discussion. What I am saying is that your trading plan should be developed to a point where – regardless of what kind of system or method you use – YOU will know exactly the conditions to buy/sell/short/cover. Part of your trading plan underpinnings should therefore be: “I will follow the instructions of my trading plan with the same consistency as I obey stop lights… and with the same regard for my wellbeing and safety.” You can write that down ON your trading plan if you like, but since I’m going to encourage you to be absolutely as economical as possible on the actual execution of your trading plan, it may be better to simply decide you are going to accept this as a fundamental premise of your trading.

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Now there are people who don’t have trading plans, and they are utter fools. Unless they belong to that aforementioned group of crazy geniuses (and probably even if they do, eventually), those who have no written trading plan they follow will eventually be out of trading because they will do rash things which will drive them out of trading through losses or poor planning. Then there are people who have trading plans, but the plans themselves are either too confusing or too complicated and these people also have little or no chance of success in trading. The only person who has a chance to be a consistently profitable trader is the one with a clear, simple, straightforward trading plan, with simple black and white instructions written on it… and they follow the rules laid out there.

I’m going to give you an extremely simple example of A Trading Plan Below

My main point here is that it all needs to be able to fit on a small piece of paper (even a business card) which can be glanced at as a reminder at all times during market hours. This plan could easily be coded into a Plan ½ this size using abbreviations. Now I want to make one thing 100% clear. I am NOT recommending this Trading Plan. I do not use it myself. I don’t know if it would be effective or not on any market you might choose to use. It is only for illustration purposes and for no other reason than to show a format. You must fill in all the data and information. “M.A.” stands for “moving average” below.

Trade only 5 a.m. to 8 a.m. PST Monday to Thursday. Use 5 minute bars for trading, 15 minute bars for trend. Look long only when 10 MA is above 20 MA on the 15 minute chart. Look short only when 10 MA is below 20 MA on the 15 minute chart

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Buy bar close when 10 MA crosses above 20 MA, Short bar close when 10 MA crosses below 20 MA Exit bar close when 10 MA crosses back across 20 MA Trade 2 contracts. Exit #1 with X points/pips of profit & move #2 to break even. Stop is initially set at X points/pips. Never moved until break even on #1 Be flat during news, 5 minutes before and 10 minutes after Close all positions at 8 a.m. PST and call broker to make sure all flat Stop trading if 3 trades are losers

Having a trading plan is not enough. You also need to have a Winning Day Trader’s Mindset, a System, and know the Secrets of Winning Day Traders. You can buy those on Amazon.com or you can get them from http://www.DayTradingReport.com

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Trading Plan Extracurriculars It’s excellent to have a plan for your trading itself, as a matter of fact by now I’m sure you agree it’s absolutely necessary. But there is another kind of Trading Plan I want to talk to you about as well, and that is a Plan for the rest of your life that supports getting great trading results. The old Latin expression was “mens sano in corpore sano” – a healthy mind in a healthy body (or a sound mind in a sound body), and it applies just as well today, especially for a trader. I found in other kinds of work I’ve done over the years that frankly it doesn’t matter too much if you are 100% present or not. I hate to mention the fields, but I will mention teaching. I suppose a very good teacher will be 100% present in the classroom, but it’s not absolutely critical. You can kind of phone it, and I used to know teachers who did just that. Sorry if you are a teacher, maybe you have another view. But my point is that trading is completely different. There aren’t many other types of work that require the same kind of absolute concentration, clarity and focus. I guess brain surgery is another one But not many people just decide to take up brain surgery one day like they do day trading! You have to have razor sharp mental clarity and razor sharp physical presence to enter trades and exit trades at precise points as most day trading systems require.

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You need to have your trader mindset (as opposed to your “everyday mindset”) plugged in. It’s quite a different way of seeing the world and it needs to be engaged. And you need your rules and structure right there with you and preparation to act on them immediately when your trade setups happen. That requires some training… not just in trading, but physically and mentally as well. No boxer would (or I guess I ought to say “should”) go into a match without training and conditioning, and neither should you go into trading without proper training and conditioning. Also it’s important that you take care of yourself physically and mentally generally. Trading can take a toll on you mentally and physically and you need to be fresh tomorrow even if today challenges you a lot. So here are a few things I suggest you do. Exercise and eating healthy. This is critical for mental clarity. Personally I prefer the “insanity workout” because I only have to exercise for 10 – 12 minutes a day. Twice a week I go out for a long walk. I used to jog several miles a day and work out with weights, but I didn’t get stronger or mentally clearer with those methods. Also I didn’t notice a drop in my blood pressure or cholesterol. With the insanity workout I’ve noticed all of these things improving. What you do for exercise is up to you, but you must do SOME exercise. Sitting at your trading computer for several hours a day is BAD FOR YOUR HEALTH, and you need to do something to counteract this. Drinking or other drugs. Use in moderation. They are called “mind altering” for a reason. You need the most clarity you can possibly get. You know your body and how things affect you. I’m not saying to do without a drink or a glass of wine. I’m not really saying

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ANYTHING other than be aware of the impact of any “mind altering substances” on your trading. In “Secrets of Winning Day Traders” I quote a famous trader who says that even operating at 90% of his efficiency reduces him to being at best a “break even trader.” And this guy is good. You cannot afford to have your efficiency below 100% when you are trading. Don’t drink and trade! Have good friends not associated with trading. It’s important to get your mind off of trading and enjoy the presence of others whom you like. Get out of the house and go spend time with friends. Take time off from trading. Another “Secret of Winning Day Traders” as I reported on in another of these reports is taking time away from trading. It gives you perspective and refreshes you to meet the market again. And add anything else you need to in order to have mental clarity. You know your life, you know your habits, and thus you know what you need to do in order to have top clarity, focus and health in order to be able to trade at your best.

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Part III, Business Plan In addition to a plan specific to trading itself, and a plan to take care of yourself physically and mentally, you also need to have a general plan for your trading business. This will help you focus on trading as a business… your results will be commensurate to the amount of time you take to carefully and thoroughly put this Plan into place in your trading business. If you do this thoroughly and correctly it will take you about one week of full time work (40 hours) to complete. Plan summary

1. Purpose Statement 2. Trading Goals including money and time 3. Provision of time, space and resources for trading 4. Personal Commitment 5. Record keeping and journal writing 6. Trading plan methodologies and Rules 7. Pay Yourself and manage your personal and business budget

1. Purpose statement

Your purpose statement should be just that. It should state why you are trading and what you are serving. Trading requires a substantial commitment of time, energy and money.

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You need to know why and state why you are doing it. Here’s a simple example from a friend of ours: “I am day trading for two reasons. The first is that I need to make a good living and I am committed to doing so in order to support my family. The second is that because I trade early in the morning I have more time with my children and my wife. The most precious thing in the world to me is time with my family and day trading allows me to have that. I am 100% committed to continuing to be a successful day trader and increasing my results through dedicated effort.” Now that’s a purpose. What’s your purpose? It’s critical you define one. True success is only generated by people who have a purpose for doing so. Answer these 3 questions:

2. Why do you want to be successful as a day trader? 3. What would it mean to you to achieve that success… how

would it change your life for the better? 4. What would you be willing to do to achieve that success as a

day trader?

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2. Trading Goals

State your goals for trading results. Be very specific. It is not acceptable to be vague or general by stating something like “I’d like to make a lot of money.”

1. State a specific amount of money you are ready to state as your goal. __________________________ (The more specific you can be the better. It’s less effective to say “a million dollars” than to specify a particular amount.

2. Now, state a goal in time by which you will achieve that

financial goal ______________________________ (Be specific. Don’t say “in the future” but rather by Christmas next year or whatever the specific time is).

3. Now, state a goal for your own personal results you will achieve

through trading. _____________________( Be specific. Don’t just say “I’ll be able to fire my boss” but something much more specific.)

3. Provision of time, space and resources for trading Make sure you have plenty of time to trade. Don’t be rushed. Personally I like trading very early in the morning. No one bugs me because no one else is insane enough to get up at 4:30 in the morning. However you do it, make sure you can trade without being bothered by anyone, by phone calls or any other distraction during the time you are trading.

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DO NOT CHECK YOUR EMAIL BEFORE TRADING TIMES OR DURING TRADING TIMES. YOU WILL ALWAYS GET DISTRACTED AND YOUR EFFICIENCY OF TRADING WILL DROP OFF AND FORCE YOU TO GET WORSE RESULTS.

TURN OFF YOUR EMAIL, CHAT, SKYPE, CELL PHONE, TV, RADIO OR

ANY OTHER DISTRACTION. Be honest and realistic and proud. Don’t have other things going on while you are trading. No one can multi-task while trading. If you multi-task you are guaranteeing losses. Don’t try to trade in the living room while the kids or grandkids are playing. Don’t try to trade in Starbucks.

To whatever extent you can in your circumstances, create a trading office which is used specifically for that purpose.

Even if it is where you usually do other work, do something to mark it off as a trading space while you are trading. I recommend neatness and sparseness. Put everything in your line of sight into order and take away all distractions. Being neat in your trading area helps you focus on the task at hand which is trading. Being neat helps you out a lot and it’s FREE. As far as your computer and internet connection go, get the best and fastest you can. Things happen FAST in intraday trading. Your machinery has to keep up.

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Don’t use an old computer you’ve never even cleared the cache on. Know how to defragment your computer and clear out all cookies, spyware and other nuisances. If you have a choice of levels of speed, pick the highest, fastest one you can get. Don’t scrimp on any of this. If you can afford to trade, you can afford to trade with good equipment and connection.

Capital Have enough money to trade on in order to meet your goals. Personally I’d never recommend trading unless you have $10,000 that is completely separate from your daily expenses, which if you lost would have ZERO impact on your daily life or ability to pay your bills. I know some people would be ok recommending $5,000. That makes me super nervous and I’d never recommend it, but do what you want. If you have $20,000 or $50,000 to trade, you’ll be much better off with most trading methodologies/systems. You WILL have drawdowns, or periods of time where you are losing, even when you are trading an excellent, proven system. It’s the nature of the beast.

4. Personal Commitment Let me state this flatly.

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If day trading is not your passion, don’t do it. If you don’t have a clear purpose, goal, time or the way to make those provisions I mentioned above, do not day trade. In order to be a successful day trader you MUST make a personal commitment, a promise and a vow to be successful. Write out your personal commitment. Write out a vow and say it out loud. If you have the inclination to skip this step, kindly close this document and delete it and do not consider day trading, because it’s not for you.

5. Record Keeping and Journal Keeping Commit to a clear business-like method of keeping records of all your expenses, transactions, trades, commissions, withdrawals and every other transaction that takes place in connection with your trading business. Also I recommend keeping a journal. This does not need to be “dear diary” or anything like that. I do recommend 2 things go in your journal every day however.

1. A list of all your trades with time, type of trade (if it has a name, or just invent one), the results and whether you were happy with your professional trade execution or not. Handwritten is best, although it’s easier to do research and spreadsheets with spreadsheet software.

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2. Every day write down 5 things you are grateful for. This will help your bottom line financially and your bottom line emotionally and personally more than you can possibly imagine.

6. Trading Plan reduced down to one sheet Above I showed you an example of how to write out a simple trading plan or the plan you’ll keep with you and review every day before, during and after your trading for the day.

7. Pay Yourself It’s very important to pay yourself for your work. Make sure you note this on your budged and Plan. There are various methods available for managing your money. Use one you like or I will also be sending out a recommendation for the one I use. Of course there’s software but I mean ways of dividing up the amount of your income into categories so all parts of your life are served. Again I’ll write you soon about this, but for the moment, just pay attention to the fact that you need a money management system that WORKS and works for you. Summary

There are three parts to a properly designed Trading Plan

1. Your Personal goals, commitments and Purpose

2. Your specific trading plan including methods and rules.

3. Your complete business plan, how it will be managed and executed.

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One you have all those things in place and completely coordinated, you’ll view yourself quite differently, and will be much more prepared to day trade.

You’ll discover you are operating more like a professional trader.

Your results will improve and you’ll feel better and better about your trading and your results.

Congratulations and be sure to get the other 2 reports in this series, either on Amazon.com (where you can buy them) or free at http://www.DayTradingReport.com

Wishing you all the best in your trading,

Dr. Max and Day Trading Team

http://www.DayTradingReport.com