Tuesday, September 22, 2009

Simplicity. (No, not another long post!)

If you would have seen my trading plan back in 1998 you’d have laughed. I was a new trader let loose on the world. I was going to swing trade stocks, using daily bars, with TC2000. My plan was so complicated (combining both technicals and fundamentals), with so much confirmation built into it that it’s a wonder I ever took a trade. When you only look for one trade every 3-5 days you have lots of time to prepare. And boy was I taking advantage of that time. Nobody could confuse me with a reckless gambler. To create that plan I read lots of books (10-15), scoured the internet for tricks of the trade (I even bought a course by that name), played with various software (including VectorVest and some weird Elliott Wave predictor software), bought some “how-to” courses, and gobbled up Investors Business Daily newspaper. If you read my post “The Scourge of the Holy Grail” you now know the origins of that post.

I mention this because yesterday I taped to the top of one of the sheets of my trading plan the words “The Final Sheet” (in BOLD). Down lower I typed, “This one sheet replaces every other book, every plan … everything!” I’ve drawn the line at the silliness.

Silliness? I love trips to the bookstore so I can drink their $3.00 coffee, check out the latest issue of TA of S&C, and browse the business section for the latest trading books. My trading plan for the mini-Dow has actually been in effect for 2-1/2 years now, but I’ve made minor adjustments over time. No more. Done. As each day of trading, observing, and learning from my charts goes by it becomes more obvious to me the silliness of even reading another issue of TA of S&C …or another trading book ….or of scouring the internet looking to see what methods others are doing. Some of you may say I’m wrong; that I need to “continue to improve”, or that it’s silly to close my door to other ideas since “times change and we have to change with them.” That’s all great conventional wisdom. But another piece of wisdom is “ignore conventional thinking”. Plow your own road.

Over the years I’ve become an expert. Yep, an expert. If you’ve read some of my posts you know I always put that word in quotation marks to make fun of anyone who calls themselves an “expert” in this business. But what I’m an expert of is me. Trading teaches you a lot about yourself and I’ve learned lots about me. I’m a certified expert on “me”. I should probably get one of those fake diplomas and confer upon myself a Ph.D in “me”. Fully accredited by The School of Hard Knocks.

My trading plan is 6 sides of paper. To some that may sound like a lot. I’ve heard before that if your plan takes up more than one side of paper it’s too long. But to be more specific, 2 sides are just drawings of some simple price action patterns you can get out of any $12 beginners book, another 2 sides contain some psychological reminders and tips. The actual plan is 2 sides of paper. For the last 2-1/2 years I have read and studied, over and over (with the exception of the little adjustments I mentioned) the same words and same sentences a thousand times over. Many parts I can repeat from memory (see my previous post on “The 3 R’s”). I don’t make this stuff up folks.

The first paragraph on the sheet that is now titled “The Final Sheet” says:

“IT’S ALL IN THE CHARTS! Everything I need to learn is seen in the charts. Study them all day. The charts will tell me what works and what I need to focus on. The charts will show me the TENDENCY of the market for any period of time, whether it be for the next 10 minutes, hour, or for the whole day. It could be that the tendency is just to form a box, or a triangle. One pattern leads to another. Is it boring at times? Yes. Is it required? Yes. When I take a setup I have to see that the market is supporting a move in that direction … at that time. Thus every small thing must fit within the view of the bigger market. This is why I say PA is always the best indicator. I need to watch for signs of DB/DT … HL/LH … triangles and boxes … breaks and failures at the S/R … and newly formed “edges”. This is the key to success.”

The particulars of my plan then just add a few things about getting in front of the TENDENCY of the market (entering in the right direction at a good time), and setting up the support/resistance levels.

What else do I need? Execute the plan. Period. There is nothing better out there for me. This is the best trading plan in the world .... for me. Execute. Execute. Execute (or be executed). Believe and Achieve, or doubt and die. Am I starting to repeat my prior posts? You bet.

There is only so much to say about the market; about psychology, IMHO. It is between YOU and the MARKET you trade. The answers to your questions are inside YOU. I watch 3 timeframes in order to enter on the smallest. Regardless what the market is doing now, next week, or next year, my job is to learn to play the time frames I have. No others. Your charts will tell you everything you need to know. That was one of my own “ahaa” moments. In my early days I spent too much time in books and not enough in the charts. It was all there, right in front of me. Observe and absorb. Everything I may say from now on may be just a rehash of stuff I’ve already said because to me there is nothing else. Simplicity. Not simple for you the first time around, but a worthwhile goal may be to see how much stuff you can keep stripping off a plan until it gets to the point of your definition of simplicity.

I know others can read this and find fault somewhere. This is a blog, not a course on trading. It’s a personal thing about me that maybe will provide a hint or two you can use yourself.

If you happen to wander into Barnes & Noble this weekend, or any other, and see me with a copy of a trading magazine, or the latest guru’s book in my hand, you have my permission to take that $3.00 café mocha out of my other hand and pour it on my head.


  1. Another wonderful post. My original and current business/trading plan is 50 pages long. :)

    Ok the actual trade part is about a page and a half.

    I too am coming (slowly) to the same conclusion, I'm done.

    That said I can't say I'm quite there yet, I screwed up Monday tinkering with charts. Your post has pushed me a little further down the path. Thank you.

    I have a plan, a trade, a signal, it works.


  2. Yes YM,

    I agree that any amount of time you go to a bookstore to read (like I do) all those latest trading books or magazines will go to naught unless you do trading in actual, that is, practice, practice, practice...or execute as you mentioned. Yes, there is no substitute in actual trading by yourself, as they say, experience is the best teacher.

  3. Excellent post. REALLY excellent post.

    At some point in a trader's career, trading becomes like a video game that he or she has mastered. When that's the case, all that's left is to execute, execute, execute and let success happen (which is sometimes harder than it sounds).


  4. My very first system I bought was "Cherry Picker" in 1994 for $295. It was a flop. More of what you wrote followed - books, gurus, S&C all the back issues, etc...

    This is 2009 people. already. We been in this game too long.:)

    My trading cheat sheet is 1/2 page long - one side.

    Guess what, I still made an adjustment last week, basically not to trade certain set ups during non-volume times of the day.

    Please God, let me STOP.

  5. Thanks, excellent post!

    Just want to point out to the newer traders, or traders who are still trying to "make it" (myself included), that it took YM-Trader over 10 years to get to this point! So if you're still in your first or second year of trading (learning), it's OK to continue with the books and studying of the markets and yourself. Reaching the point that YM Trader is at is a "process" and takes time.

    Last but not least, I want to congratulate YM on reaching this point. I think a follow-up post on complacency would be awesome because some people may take this post as "I've made it; it's smooth sailing from here on out".

    Thanks again for sharing!


    thank you very much!!!

  7. Thank you, thank you, thank you for all the great comments guys. We all learn from each other.

  8. I agree with you 1000%.
    My trading plan is 1/2 page, chart included, and I love it!!!
    I trade with one chart only, two indicators, and I follow patterns.
    Simplicity make life much easier, but I have to work daily on my psychology, because I know that is where I can get in trouble, even with a winning trading plan.


  9. JE,

    I would like to continue following your blog if possible.

    Thank you.


  10. hi JE is Daniel here, Can i be a guess in your blog so i can read it and learn from you as well as from e-mini?



  11. Good post.
    Being a minimalist in most areas of my life has stood me in good steed for trading.
    My trading plan:
    1. Get into the flow
    2. Feel the momo
    3. Confirm the markets
    4. Check the clock
    5. Enter trade
    6. Set stop at exit price
    7. Manage trade

    I also read only two trading books.
    My head is free and clear to focus on what the charts/markets are doing and act/react to that. Never read /watch / listen to any media about stocks. Try it, you'll like it.

  12. Thanks E-Mini, Superman, and all. There is no room for complacency. In fact, the game is just heating up. Now is time for some real movement forward.


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