Is My Trading Plan Any Good?
As traders, this is the question we all ask ourselves. Even if we have been trading our plan profitably for some time, our equity curve will at some point start flat-lining or going south, and we question whether we should stick to our plan or not.
We might start second-guessing ourselves, lose a little confidence, and ask ourselves:
Is my trading plan any good or do I need to change what I'm doing?
Let's assume that the plan has good logic, sound risk management, and has been sufficiently back-tested and/or forward-tested to have given you confidence when you started trading it. Here are 4 questions I ask myself when reviewing each and every trade:
#1: Was this trade traded according to my plan?
It’s obviously really important to be clear on whether a trade was a plan or non-plan trade. When, looking back at a trade, we only really need to ask ourselves one question:
Regardless of whether it was a win or a loss, would I be able to identify this trade as a plan trade in one year’s time?
If it wouldn’t show up in any future back-testing then it’s not a plan trade.
So, if the water has got a bit muddy for you and you are finding it difficult to answer the above question with clarity, it might be worth looking at a couple of possibilities and tweaking things accordingly.
#2: Is my trading plan is too vague?
If your trading rules are too wishy-washy, then your trading decisions are going to be based on factors other than what’s in front of you e.g. how you are feeling that day, previous trades, what you think is going to happen. If you can’t answer the question “was that a plan trade?” quickly and decisively, then maybe you need to tighten up your trading rules.
Get really specific about entry, stop and take profit levels. Make life easier for yourself by giving yourself much clearer instructions.
#3: Is my trading plan is too complex?
If you find yourself tying yourself in knots considering a multitude of factors, then your plan might have too many conditions. Looking back on your trades, if you start getting brain-ache trying to decide if you traded to your plan, then you might need to simplify your rules.
Simplification does not mean your plan is going to lose effectiveness, often it has the opposite effect. Again, our aim is clarity, ease of execution and ease of knowing whether or not we traded according to our rules.
#4: Is there is too much mental noise when I'm trading?
Can you confidently say you traded the way you planned without getting influenced by the noise coming from elsewhere? Do you double-check other people’s opinions on the market before taking a trade? If so, then the increased mental noise caused by forums, social media and newsfeeds might be causing you to second-guess yourself.
You are not trading anyone else’s plan but yours. Experiment with turning off the extra noise when asking yourself if you traded your plan or not.
A clear, simple, easily-backtested plan is paramount to improving our trading mindset, increasing our confidence and becoming more successful. When asking ourselves if our plan is a good one, these questions can help give us renewed confidence that we will be able to consistently execute our trading plan through good markets and bad.
Then, we can easily check our trading results over a large number of trades to see if it is profitable trading strategy.
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