The Trading Plan

I recently heard SLM's  trader psychology segment from Jan 9, 2013 and was a bit kicked in the tail. I'm failing part of the plan that my wife and I agreed upon. Though it's only part it's a psychological crack that I can't leave un-mended. So to bring myself back in line: Here we go.

(doc link to the most current version, also it's over in the pages list)

Preface

I've had this sitting in Evernote for ages. Well. Alright, since 8/17/13. That's ages in some (a lot of) contexts. Because I've been sitting on it, being lazy, I've broken Guidance #5 from the get go. Drat it all.

Worse, I realize looking at it again that the plan has changed. Which is fine, but I'm not going to post the original version now, that'd feel silly, and so the progression is lost. Ah well. Also some of this is a bit forced because I'm trying to maintain the generic flavor of the plan when I've already pretty well gelled strategy and methods for the time being. Everything is subject to change though so I want the plan to be able to encompass those changes in strategy. It's simply hard for me to pull back from the specifics I've already decided on yet necessary to do so.

The Trading Plan

1. Assertions
1. I intend to begin trading stock options. If sufficient income streams can be built to finance my personal budget while continuing to grow account balance(s) I will cease to have a 'day job.'
2. I will be performing strategic trading based on carefully considered metrics without relying on any accuracy of forecasting individual positions.
3. Which segments and what sorts of metrics or analysis are something I must continually research, test, and refine; as a trader this must be the skill which defines my trading and will be the algorithm that will be built into future growth.
2. Guidance
1. I will actively discuss results and progress with my wife. As my children are ready I will introduce them to these topics.
2. I will perform stock-picking only as paper trading. CAVEAT: I may need to bootstrap with discretionary trading but will resist the inherent belief that I can pick a winner.
3. I may take a bath in the event of a housing-collapse-style event. I accept this possibility and will not rely on trading incomes to survive until such time as I have sufficient reserves to re-start  from scratch (this assertion will require continual, ongoing analysis of budget requirements, market conditions, and account disposition).
4. I must accept a certain amount of losses; I must identify how much loss can be allowed on any given strategy. I must perform Risk/Reward analysis at the strategy level rather than the individual trade, though the two will most likely closely reflect each other. This analysis will probably require a regular weekly review, and therefore comprehensive tracking will need to be set up.
5. I WILL communicate publicly (probably via blog) as much of my strategies and results as I can as time and energy allow.
6. I will not utilize a portable trading platform. Trades and direct research will be conducted from a tethered location. Though a multi-purpose laptop may be used, it will only be used for these activities at a single location. Educational pursuits are excepted (grey areas like blog reading must be monitored). A mobile device may be used to check account status for the purpose of personal budget planning. In short, I leave the trading behind at the desk and offer undivided attention, or at least not divided by the markets, to whatever my present situation may be.
7. I will rely on statistical advantages multiplied over number of occurrences to achieve success. I will not ride black swans but will take the first exit which offers reasonable profit on each and every trade.
3. Progression
1. I will test multiple free or demo tools and select an initial, preferably low overhead, tool for beginning trading on the assumption that success will open the financial doors to more powerful tools in the future
1. MILESTONE: Initial tool selected by 2013-10-31 - complete (ThinkOrSwim {TOS})
2. ADDITIONAL: Tool licensed or subscribed by 2013-11-30 - complete, the thing is free (with an unfunded account @ TDAmeritrade)
2. I will educate and paper trade until 2014-01 to familiarize myself with 1 or 2 possible strategies and allow maximal time to deal with tax complexities
1. MILESTONE: First money trade position opened by 2014-01-31
1. Threatened: Account funding took longer than expected and then the brokerage stonewalled on trading spreads. Working on preparing another account elsewhere
3. Identify mechanically repeatable strategy metrics
1. MILESTONE: At least one safe mechanical trade strategy by June 2014
4. Begin cobbling ad hoc automation technologies
1. MILESTONE: An ugly, bootstrapped system able to generate trade orders by Dec 2014.
2. ADDITIONAL: A way to get the generated trade orders executed by same deadline
4. Goals
1. Daily
1. Perform at least 2 paper trades a day using any strategy or mix of strategies. This goal is intended to be perpetual. Paper trades will be logged in whatever tracking device in use at the moment (currently a Google spreadsheet)
1. This has slipped a lot but I feel has been sufficient, especially over December 2013, to proceed
2. Annually
1. Year 1 (2014/01/01 - 2014/12/31)
1. Annual average account growth of 20%. This means that ROR must average to 20% to maintain growth.
1. This may be way too aggressive based on December returns. However markets vary and this may be feasible in the future. Requires monitoring
3. Quarterly
1. Review of account performance against an idealized growth chart tied to the annual goal
1. This should probably be monthly, as the account balance becomes tied to living expenses this will become part of the family budgeting routine
4. Weekly
1. Weekly review of positions and aggressive profit-taking. Positions should turn over quickly to maintain income flow. Highly profitable positions may be held longer to increase average ROR if possible.
1. This is only marginally necessary. I’ll be putting in closing limit orders at my desired exit point the day after each position opens. Position review is necessary but the aggressive profit taking will be built into the trades.
2. I deliberately left that stupid sentence in there struck-out as a reminder of my own hubris. Positions will close at defined profit points as determined at the time the position is opened. If I feel a play could have been more profitable I am free to try to re-open the position in any way deemed profitable.