Trading Business Plan - Outline

(Plan your trades. Trade your plan)

HK Draft - 003

(Dynamic list: continually updated dependant on trading style and experience gained)

Disclaimer

All reasonable steps and due diligence have been taken in preparing this document. However, it
may contain ideas that are not appropriate to you or your style of trading, so perform your own
research and draw your own conclusions. By itself, this document will not enhance your trading
performance, nor will it prevent you from incurring losses. Any losses that are incurred are the
sole responsibility of each trader. Under no circumstances will the authors accept any liability for
loss.

1 Acknowledgments
To the many members of the ET community www.elitetrader.com for sharing their insight,
experience and knowledge. Most notably:

 Anekdoten:
o For providing the framework to a simple but highly effective trading methodology
“AHG”, the basis of which is the primary trading strategy of this Trading Business
Plan.
o Contribution of custom indicator’s and paint bar codes.

 Piscuy:
o Contribution of his “123 Pivot”, “box trading”, scalping and trading strategies.
o Contribution of custom indicator’s and paint bar codes.

 Suri Duddella:
o Author, Trade Chart Patterns Like the Pros, © 2007, specific trading techniques.
o The basis from which the majority of trade set-ups have been derived
o Contribution of detailed explanation on adapting his techniques to the “AHG”
method.
 (Define complete acknowledgement details)

 Tim Wilcox: Trading Plan Template, © 2005,

o Inspired portions of this Business Plan

 Additional contributors listed in Appendix

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 Trading Business Plan - Outline
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2 Revision History
Version No. Date Author Changes
HK Draft - 001 12/17/07 Henry Kaiser First Draft
HK Draft - 002 01/11/08 Henry Kaiser Second Draft
HK Draft - 003 TOC, formatting

3 Executive Summary
 (prepared upon completion of all details – including overall business plan)

NOTE: To activate form functions on sample trade sheets:

Select form toolbar and lock document by clicking on “lock” icon in forms toolbar

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 Trading Business Plan - Outline
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Table of Contents

1 Acknowledgments...................................................................................................................1
2 Revision History.......................................................................................................................2
3 Executive Summary.................................................................................................................2
4 Objectives................................................................................................................................6
4.1 Annual trading goals.........................................................................................................6
4.2 Monthly trading goals.......................................................................................................6
4.3 Weekly trading goals........................................................................................................6
4.4 Daily trading goals............................................................................................................6
5 Business Planning and Budgeting...........................................................................................6
5.1 Profit and Loss Projections - (Spreadsheet to be created)..............................................7
6 Risk Management- (define).....................................................................................................7
7 Money management................................................................................................................7
7.1 Asset allocation................................................................................................................8
7.2 Expectancy Ratio.............................................................................................................8
7.3 Position/Lot Size...............................................................................................................8
7.4 Scaling In (Averaging Up) (confirm and research additional methods)...........................9
7.4.1 Level 1: (Initial) (1/1/1)..............................................................................................9
7.4.2 Level 2: Intermediate (2-1-2-1-2-1)...........................................................................9
7.4.3 Level 3: Advanced (2-1-3-2-4-3)...............................................................................9
7.4.4 Level 4: Highly Advanced (3-2-1-4-3-2-5-4-3)..........................................................9
7.4.5 Optional level 2: Pyramid technique (3/2/1)..............................................................9
7.4.6 Scale In/Scale Out - Combination.............................................................................9
7.5 Scaling Out (confirm and research additional methods)................................................10
7.5.1 Level 1 (Initial) (1/1)................................................................................................10
7.5.2 Level 2: Intermediate (1/1/1)...................................................................................10
7.5.3 Level 3: Advanced ???............................................................................................10
7.5.4 Scale Out / Scale In - Combination.........................................................................10
8 Entry, Exits, Triggers and Stop Loss......................................................................................11
8.1 Entry Signals/Triggers....................................................................................................11
8.2 Entry Points....................................................................................................................11
8.3 Exit Strategies.................................................................................................................11
8.4 Confluence.....................................................................................................................12
8.5 Targets............................................................................................................................12
8.6 Stop Loss........................................................................................................................12
8.7 Nominal Stop..................................................................................................................13
8.8 Stop placement..............................................................................................................13
8.9 Initial Maximum Stop and Minimum Target (to be well defined)....................................13
9 Trading Strategies.................................................................................................................14
10 Patterns Traded (See Appendix)........................................................................................14
11 Indicators............................................................................................................................14
12 Chart Settings....................................................................................................................14
13 Screen Set-up....................................................................................................................15
14 Instrument’s Traded...........................................................................................................15
15 Markets Traded..................................................................................................................15

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16 Trading Hours....................................................................................................................15
17 Trading Limits.....................................................................................................................16
18 Trade Limits - Signals Stop / No Trading...........................................................................16
19 Economic Calendars..........................................................................................................16
20 Trading Journal..................................................................................................................17
21 Third Party Journal Options...............................................................................................17
22 General Rules....................................................................................................................18
23 APPENDIX.........................................................................................................................19
23.1 Disaster Recovery Planning...........................................................................................19
23.2 Brokerage.......................................................................................................................19
23.2.1 Brokerage Contact Information...............................................................................20
23.3 Daily Procedures (Define in greater detail)....................................................................21
23.4 Trading Environment......................................................................................................22
23.4.1 Equipment / Hardware............................................................................................22
23.4.2 Software..................................................................................................................22
23.5 Expenses........................................................................................................................23
23.5.1 Business Expenses (Start-up)................................................................................23
23.5.2 Business Expenses (monthly)................................................................................24
24 Trade Set-Up Checklist(s) - (to be defined).......................................................................25
24.1 Individual Trade Set-Ups - Basic Template (define in greater detail)............................25
24.2 Trade Set-Ups with Diagrams - (to be defined).............................................................27
24.2.1 Trade Set-up Sample #1.........................................................................................28
24.2.2 Expectancy ratio – (Reference calculator)..............................................................28
24.2.3 Reliability of pattern................................................................................................28
24.2.4 Probability of Successful Trade..............................................................................28
24.2.5 Risk/Reward............................................................................................................28
24.2.6 Strategy – applicable..............................................................................................28
24.2.7 Validity period (N-bars)...........................................................................................29
24.2.8 Entry........................................................................................................................29
24.2.9 Stop.........................................................................................................................29
24.2.10 Target...................................................................................................................29
24.2.11 Exit.......................................................................................................................29
24.2.12 Money Management............................................................................................30
24.2.13 Individual Trade Set-up Sample # 2....................................................................31
24.2.14 Individual Trade Set-up Sample # 3 (drop down menu).....................................32
24.3 Specific Order Entry Procedures (to be defined in greater detail).................................33
24.4 Patterns traded (Ref: Trade Chart Patterns like a Pro, Suri Dudella)............................34
24.4.1 Tops and Bottoms...................................................................................................34
24.4.2 Geometric:...............................................................................................................34
24.4.3 Harmonic Patterns:.................................................................................................34
24.4.4 ZigZag.....................................................................................................................34
24.4.5 Price-Action.............................................................................................................35
24.4.6 Exotic Patterns........................................................................................................35
24.4.7 Event Patterns:........................................................................................................35
24.4.8 Channels.................................................................................................................35
24.4.9 Bands......................................................................................................................35

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24.4.10 Additional Patterns..............................................................................................35
24.5 Additional Thoughts........................................................................................................36
24.5.1 Five Fundamental Truths: (Douglas, Trading in The Zone)....................................36
24.5.2 I am a consistent winner because: (Douglas, Trading in The Zone)......................36
24.5.3 Keys to Success......................................................................................................36
24.5.3.1 Discipline..........................................................................................................37
24.5.3.2 Patience...........................................................................................................37
24.5.3.3 Attitude.............................................................................................................37
24.5.3.4 Bias..................................................................................................................38
24.5.3.5 Loss and Failure..............................................................................................38
24.5.4 Life Balance............................................................................................................38
24.5.4.1 Working from Home v External office..............................................................38
24.5.4.2 Marriage, Family & Trading (finding balance)..................................................38
24.6 Back Test and/or Forward Test Results..........................................................................39
24.7 Additional Contributors...................................................................................................39
24.8 Additional Required Elements for Business/Trading Plan:............................................39
24.8.1 Trading Plan pdf – ref: Stealth http://www.online-futurestrading.com/Introduction 39
24.8.2 Additional elements.................................................................................................39
24.8.3 Additional thoughts and comments appreciated.....................................................39

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4 Objectives

4.1 Annual trading goals

 Capital preservation to 20 % increase in trading capital
 Master current strategies
o Measurable performance improvement (parameters to be defined)
 Develop a profitable trading strategy
o Filter effective and non effective trading strategies
 Low risk, high probability
 Expectancy ratio 120%

4.2 Monthly trading goals

 Remain consistently profitable
 Achieve an average 2% increase in Trading Capital
 Review and amend trading business plan
 Refine 2 ea. trading strategy set-ups
o (Define monthly revenue/profit targets)

4.3 Weekly trading goals

 Maintain strict compliance with trading business plan
 Consistent discipline and execution performance
 Review and refine trade set-ups
o (Define weekly revenue/profit targets)

4.4 Daily trading goals

 Refine recognition, entry and exit technique skills
 Execute with 100% discipline
 Maintain patience, not force trades
o (Define daily revenue/profit targets)

5 Business Planning and Budgeting

 Capital Base / Initial Account Balance

 Annual Business Plan and Budget
 Revenue Projections Spreadsheet
o Quantify monetary goals
 Long-Term Financial Projections
 Tax Status and Consideration
 Realized Profit and Loss Spreadsheet – Appendix (to be created)
 Separate Excel program (showing anticipated growth/acceptable drawdown…etc)
 Withdrawals

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5.1 Profit and Loss Projections - (Spreadsheet to be created)

 Gross trading revenue

 Fees and commissions
 Living expense withdrawals
 Tax assumptions

6 Risk Management- (define)

 Never risk more than 1-2% of account on any single trade

 Never invest more than 20% of account on any single trade or instrument.
 Never risk monies which can not afford to be lost
 No overnight Futures positions
 Specific strategy risk. Reference: Individual Trade Set-ups

7 Money management

 Capital Preservation - #1 Rule

 Risk to reward ratio
o 3-1 Standard (swing/short term)
o per specific pattern trade set-up rules
 Keep losses small (reference AHG method) (to be defined in greater detail)
o Small strategic initial stops, moved to protect profits
o Take partial or all profits upon reaching initial profit target
 Advanced: allowing portion of trade for to play out (home runs) (Amend)
 Protect profits
o Stops continually adjusted to protect 80% of profit minimum
o Never allow winning trade to become loser
 Maximum daily loss limit = 2% of account balance or ($ amount)
 Maximum weekly loss limit = 5% of account balance or ($ amount)
 Maximum monthly loss limit = 10% of account balance or ($ amount)
 Futures: Only commit 25% of equity to the markets.
o Maintain 75% in reserve for margin calls and a psychological cushion
 NEVER AVERAGE DOWN - never add to a losing position

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7.1 Asset allocation

 80% of portfolio conservative investments, index’s, bonds, trust deeds etc… (with stop-
loss)
 20% maximum of portfolio for aggressive investments / short term trading
 Trading account not to exceed 10% of total portfolio
 Initial trading account not to exceed $50K 6-months, $100,000 12-months, $200,000 year
2
 Allocate 30% of earnings for taxes
 Pay self; 20% of net earnings may be spent on discretionary items. Family fund.
o Minimum of 50% of trading net earnings to be re-invested
o Minimum of 75% of investment net earnings to be re-invested
 College/retirement fund’s to remain in conservative accounts only (Maximum 60/40
Equity/Bond)

7.2 Expectancy Ratio

 Risk to Reward > 2.5

 Accuracy > 55%
o Ref: calculator in accompanying excel spreadsheet (to be created)

7.3 Position/Lot Size

 (New strategies)
o 1 car/lot until consistently profitable (3-months minimum) (6-months for novice)
 (Established strategies)
o level 1 Scaling In -- 3-months consistent profitability
o level 2 Scaling In -- 3-months consistent profitability
o level 3 Scaling In -- 3-months consistent profitability
o level 4 Scaling In -- Sustained consistent profitability
o level 1 Scaling out -- 3-months consistent profitability
o level 2 Scaling out -- sustained profitability
 50% increase of (nominal) car/lot size allowed every 3 months of consistent profitability
 Failure to maintain consistent profitability, revert back one level (minimum)
 Risk Management limits and position size calculator (to be created)
o Determine Maximum contracts traded per each $10,000 account
 Initial contract with fixed value strategy
 Initial contract with scale-in strategy
 Initial contract with scale-out strategy
 Create for Equities and Futures
 Define in greater detail

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7.4 Scaling In (Averaging Up) (confirm and research additional methods)

7.4.1 Level 1: (Initial) (1/1/1)

 Initial entry 1-car (nominal lot/position size)
 With 1-car adds (equal position size)
 Add to winning positions if fundamentals and TA not changed
o Moving stop to protect profits at all times

7.4.2 Level 2: Intermediate (2-1-2-1-2-1)

 Initial entry 2-cars (or 2x nominal position size)
 adds alternated until stopped
 Add to winning positions if fundamentals and TA not changed
o moving stop to protect profits at all times

7.4.3 Level 3: Advanced (2-1-3-2-4-3)

 Initial entry 2x, adds alternated until stopped, moving stop to protect profits at all times
 adds alternated until stopped
 Add to winning positions if fundamentals and TA not changed
o moving stop to protect profits at all times

7.4.4 Level 4: Highly Advanced (3-2-1-4-3-2-5-4-3)

 Initial entry 3x, adds alternated until stopped, moving stop to protect profits at all times
 adds alternated until stopped
 Add to winning positions if fundamentals and TA not changed
o moving stop to protect profits at all times

7.4.5 Optional level 2: Pyramid technique (3/2/1)

 Never adding more than the original car size
o Initial position 3-cars, 2nd position add 2-cars, 3rd position add 1-car
 (Reverse pyramid can lose all profits with a small loss)

7.4.6 Scale In/Scale Out - Combination

 Define in greater detail

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7.5 Scaling Out (confirm and research additional methods)

7.5.1 Level 1 (Initial) (1/1)

 Initial entry 2-cars (nominal lot/position size)

o close ½ position at initial profit target or approaching point of interest (S/R)
o close remaining position as normal
 trailing stop (strategic or pre-defined)
 approaching point of interest (discretionary or tightening stop)
 moving stop to protect profits at all times

7.5.2 Level 2: Intermediate (1/1/1)

 Initial entry 3-cars (nominal lot/position size)

 Close first 1/3 position at initial profit target or approaching point of interest (S/R)
 Close second 1/3 position at secondary profit target or approaching point of interest (S/R)
 Close remaining position as normal (per trading plan) (often left for runners)
o reaching final profit target
o trailing stop (strategic or pre-defined)
o approaching point of interest (discretionary or tightening stop)
 moving stop to protect profits at all times

7.5.3 Level 3: Advanced ???

7.5.4 Scale Out / Scale In - Combination

 Scale out at initial profit target

 Scale back in at retracement
o Define in greater detail

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8 Entry, Exits, Triggers and Stop Loss

8.1 Entry Signals/Triggers
 Multiple confirmation, confluence of indicators,
 Trend line pierced confirmed by closing bars (not wicks) of support or resistance.
 Dual confirmation of breakout required by confirmation tick past closing bar (magic tick)
 Engulfing paint bars
 Anchor charts for trend confirmation
 Faster charts for precise entry

8.2 Entry Points

 Define difference between entry signals/trigger and entry points
o Triggers determine trade validity
o Efficient entry determined by price action and opportunity after trigger
o Clarify, define in greater detail

8.3 Exit Strategies

 Design exit strategy before initiating trade. (bracket order) OCO, OSO
o GTC protective stop (simultaneous to trade order)
o GTC Profit target limit order (adjust after trade initiated)
 Exit Prior to Major Support/resistance (areas of interest)
 Trend reversals
 Modified HA Bars used to time exit for potential runners (exits only)
 Exit trade when reason entered is no longer valid
 Price action
 Tighten trailing stop upon
o Reaching initial target
o Approaching major support/resistance
o Approaching recent swing high/low
o Major Pivot points, Daily, Globex, etc….
o Gaps
 Exit strategy
o May close trade early under the following conditions
 Losing trades
 Parameters for remaining in trade have changed
 Exit signals – close trade before stop is hit (define)
 Winning Trades
 Exit Signals to close entire position (protect profits)

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 Exit Signals to close partial positions (define)

8.4 Confluence
o List of confirmation indications - confluence
 Define in greater detail
 Frequency (horizontal)
 Amplitude (vertical)

8.5 Targets

 Pattern height or mid-points as per specific pattern trade set-up

o Fibonacci extensions
 Fibonacci retracement levels for prediction
o Market E-motion indicator for pull backs
 Key areas of interest - (define)
o Major Swing High/Low
 Minimum Target Previous Pivot High/Low
 Target sweet spot of trade (80%) of anticipated range
 E-mini Targets per trade
o NQ = Minimum 5-6 point potential / max 2.5 point stop

8.6 Stop Loss

 Initiate protective stop at time of trade # 1 Rule,

o ALWAYS WITHOUT EXCEPTION
 Adjust to protect capital when trade moves favorably
o Consideration given to strategic points of interest
 Initial move (close to entry, BE acceptable)
 Once reaching initial profit target
 adjusted according to volatility and pivots
 Trailing stops adjusted to strategic levels (short term trades)
o Support/resistance
o Swing high/low
o Pivot points (previous)
o Trend line (trailing)
 Under pivot low/high at trend line bounce (Define in greater detail)
o Gaps
o Etc…
 Trailing stops by percentage or set dollar amount acceptable for (longer term trades)
 If trade reverses, take small loss and move on
 Never lower a stop in a long position, or raise a stop in a short position
 Never move stop unless to protect profits

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 Never cancel a stop loss order after you have placed it!

8.7 Nominal Stop

 2x target minimum > 3x preferable

 2.5 points maximum initial stop (nominally)
o Adjust for volatility and pivot
 3-3.5 points when play is up
o Adjust for volatility and pivot
 Larger stops acceptable (pattern plays) per pattern set-up

8.8 Stop placement

 Initial stop # 1: place stop 1 tick above/below entry bar’s high/low

 Initial stop # 2: place stop 1 tick under recent swing high/low
 Initial stop # 3: place stop above/below pattern high/low/midpoint per pattern set-up
guidelines.
 Adjusted stops 1 tick above/below strategic levels
o Previous bar high/low
o Recent swing high/low
o Points areas of interest
 Major support/resistance (entry and anchor charts)
 Pivot Points

8.9 Initial Maximum Stop and Minimum Target (to be well defined)

Minimum 5-6 pt target (intraday) Prefer 10+ pt opportunities

Stop Target Period

 ES (intraday)
 NQ 2.5 pts 5-6 pts / 10+ pts (intraday)
 ER2 (intraday)
 YM (intraday)
 DAX (intraday)
 QQQQ (Swing)
 SPY (Swing)
 VTI (Swing)
 VWO (Swing)
 VGK (Swing)
 VPL (Swing)
 VNQ (Swing)

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9 Trading Strategies

 Primary Trading Strategy

o Trend line breakout
o Pattern breakout
 Secondary Trading Strategies
o ‘Retracement’ strategy to trade the open
o ‘Reversal’ strategy for the evening session.
 (Define additional strategies in greater detail)

10 Patterns Traded (See Appendix)

11 Indicators

 Trend lines
 Horizontal Lines
 Market structure (HH’s, LL’s, HL’s, LH’s)
 Support and Resistance visual aids
 Highs and Lows visual aids
 Pivot Points
 Volume based bars, tick based bars
 Time and sales (tape reading)
 Paint bars to accentuate price action
 Candlesticks to find additional confirmations
 Zig Zag indicators to enhance patterns
 Fibonacci Retracement percentages
 AHG E-motion (Dynamic Fib retracement)
 Modified Heiken Ashi Candle sticks bars
o Modified Paint Bars Anek
o Modified Paint Bars Piscuy
 Time & Sales

12 Chart Settings

 ES = 2500/5000 -- 50K/100K (anchor)

 NQ = 1000 (610 tick) -- 10k (anchor),
 ER2 = 750 (610 tick) -- 7500 (anchor)
 DAX = to be determined

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 ETF’s = to be determined

13 Screen Set-up

 Entry Chart
 Anchor Chart
 Order entry – DOM / Matrix
 Time & Sales

14 Instrument’s Traded

 Highly liquid instrument’s only

o ES - preferred
o NQ - preferred
o ER2 – experienced traders only
o YM – CBOT issues (not trading)
o DAX – preferred (due to time constraints)
o ETF’s, (QQQQ, SPY, VTI, VWO,VGK,VPL,VNQ)

15 Markets Traded

 US equities / ETF’s
 US Index futures
 German Futures

16 Trading Hours

 (US Market) - Regular hours (EST)

o Mornings (9:45-11:45)
o Afternoons (2:00-3:30)
o First ¼ hour to determine prevailing trend
o Last ½ hour only to close positions (NO NEW POSITIONS)
 (US Market) - After hours
o Monitor, only trade high probability, excellent R/R set-ups
o (individual set-ups to be defined)
 (European Market) - Regular hours (CET)
o 15 minutes after open until 30-minutes before close
o Last ½ hour only to close positions (NO NEW POSITIONS)

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17 Trading Limits

 Daily trading limited to 10 round trip trades per day initial 6-months (Intra-day)
 3 Swing/position trades (new positions) no limit on closing of positions
o Disciplinary non-compliance procedure / Overtrading Controls
 1-week trade limitation
 Daily trades limited to maximum of 4 ea. per day
 Limited to use of top three most reliable trade set-up’s
 Position size limited to minimum for instrument
 Maintain trade limitations until accuracy increased to > 75%
 (minimum 16-trade average)
o (define in greater detail)

18 Trade Limits - Signals Stop / No Trading

 Outside of designated trading hours

 Upon reaching daily loss limit
 Upon reaching weekly loss limit
 Upon reaching monthly loss limit
 Upon reaching daily trading limit - (define)
 When emotional drained – tired, depressed, angry, overly exuberant, feel invincible
 When distracted, unable to focus
 When feel impulse to trade on hunch, bias or new event
 When volume is consistently low
 When usual setups are simply not working
 When trend changes every five minutes (extreme chop)
 Analysis cause, make adjustments, wait for new period to start
o (define in greater detail)

19 Economic Calendars
 Define trading rules on specific special events
 No Trading on FOMC
 No Trading on option expiry day

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20 Trading Journal

 Maintain daily records of trading activity and results.

o Post daily charts with annotations of Trades taken and trades considered
 Post charts to separate file
 File name format: “Journal chart 2007-12-31 - 001”
o Post to 3rd party software program or Excel Spreadsheet:
o Reference: Trading Journal-Template-hk-002 (to be posted with Trading Business
Plan)
 Trade entries, stops, exit
 Conditions
 Outcome
 Mood, thoughts and questions which arise
 Market reaction to special events,
 Analysis of Days events and trades
 Chart Reference
 Develop method to track the following
o Initial stop placement and stop adjustments (to-from, reason)
o re-entry of positions (reason, confirmation signals)
o order and fill (slippage)
 (To be defined in greater detail)

 Review
o Comparison of Goals and Objectives
 Revenue Projections Worksheet
o Compliance to trading plan (discipline)
o Performance of trade set-ups
 Modify Trading Plan accordingly
 Learn from mistakes
 Personal development

21 Third Party Journal Options

 www.stocktickr.com
 www.wordpress.com
 Suggestions Welcomed -- Please!!!

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22 General Rules

 Risk Management at all times

 Strict Adherence to Business trading plan (NO Deviations, without amending plan)
 Paper trade until consistently profitable before risking real money.
 Assimilate a set of personal trading rules that works for you.
 Keep it simple
 Trade with the trend: market, sector and equity
 Never attempt to call Tops or Bottoms
 Never allow a big winning trade to turn into a loser.
 No countertrend trading during first 6-months
o exception for specific pattern strategies, per trade set-up rules
 Reject buy/sell signals if not consistent with other trends
o never trade a dip without conducting research
o exception for averaging up (per averaging up guidelines)
 be aware of upcoming announcements
o Do not trade FOMC day-first 6 months
 Review positions nightly (swing and longer term)
 Become proficient in current strategies before adding strategies
o initially trade index’s, then sectors, then stocks
o use price action and volume as primary determination
o go for sweet spot, wait for confirmation
 Back test all new trading plans and strategies (1-2-3-5 year periods)
 Paper trade all new strategies
 Only trade long positions with strong fundamentals / short positions with weak
fundamentals
o (Swing/medium term)
 Continued Education

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23 APPENDIX
23.1 Disaster Recovery Planning

 Primary Protection: Protective stop placed at time of all trades (ALWAYS)

 Equipment / System failure

o Redundant trading system’s

 Two computers configured with trading software & authorization’s.
 Primary – Dell XPS710 Tower
 Secondary – Dell Inspiron 9400 laptop
 Multiple monitors 2 ea. Dell 30” & 2 ea. Dell 20”
 ABS Battery backup power supply

o Internet / connectivity
 Primary: Broadband ADSL
 Technical support -- 08 92 69 91 13
 Back up #1: Dial up connection access telephone number 08 60 00 84 84
 ID xxxxxxxxxxxx Password: “reminder”
 Back up #2: GPRS / 3G cellular internet access, USB

 Multiple brokerage accounts with equal trading permissions

o Tradestation – Primary Futures / Secondary Equities
o Interactive Brokers – Primary short term Equities / Secondary Futures
o Wells Fargo Investments – Primary longer term Equity positions

 System failure procedure:

o Maintain list of open positions
o (print portfolio upon position changes)
o Have account numbers & passwords readily available
o Call Trading Desk(s) and place appropriate order(s)
o If unable to reach primary broker, call secondary broker and take opposite
position(s)

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23.2 Brokerage

 Multiple brokerage accounts with equal trading permissions

o Tradestation – Primary Futures / Secondary Equities
o Interactive Brokers – Primary short term Equities / Secondary Futures
o Wells Fargo Investments – Primary longer term Equity positions
 Minimum 20% of primary brokerage account maintained in secondary brokerage
accounts
o To take protective positions in event of emergency

23.2.1 Brokerage Contact Information

 Interactive Brokers
o Trading Desk – Phone (877) 442-2757 or (877) 4IB-BRKR option *1
 Secure Transaction Program Hotline (203) 618-4006
 Open Hours 24
 Account # _________________
 Password reminder: (never save passwords in computer files)

 Print daily list of open positions (Portfolio)

 Obtain confirmation
 Print Customer Service Worldwide Telephone numbers attach to trading
plan

 TradeStation Securities
o Trading Desk – Futures Phone: (800) 837-8951 or (954) 652-7930
 Open 24 hours: Sunday, 3:30pm – Friday, 5:30pm ET
 Account #_________________
 Password reminder: (never save passwords in computer files)

o Trading Desk – Stocks and Options Phone: (800) 871-3563 or (954) 652-7915
 Monday – Thursday, 7:30am – 6:30pm ET
 Friday, 7:30am – 5:00pm ET
 Account # _________________
 Password reminder: (never save passwords in computer files)

 Print daily list of open positions (Portfolio)

 Obtain confirmation
 Print Customer Service Telephone numbers attach to trading plan

 Wells Fargo Investments

o Trading Desk – (866) 849-5758 *2 - Brokerage premier service
o Trading Desk – (866) 817-7940 *2 – Brokerage standard
 Hours 24 hours phone service
 NOTE: NO After hours trading

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 In emergency must take opposite position with Interactive Brokers
 Account # _________________
 Password reminder: (never save passwords in computer files)
 List of open position
 Obtain confirmation

 Note: Imagine the worst-case scenario and plan what you would do. (define in greater
detail)
o List step by step actions in the order you would proceed.
o All part of an overall plan.

23.3 Daily Procedures (Define in greater detail)

Activity Plan by time of day. Plan the day ahead, hour by hour

(Paris Schedule)
 0200 hrs. EST - Make coffee… ;o)
 Analyze previous day’s trades
o Analyze and log previous days trades (if unable evening prior)
 Update trading journal
 Annotate any deviations from trading plan
o Review and open positions and update targets and stops
 Pre-market Activity
 Analyze Market conditions for (swing, position trades)
o Assess current days market conditions and plan accordingly
o Make an initial selection of possible instruments to trade
o Determine major S/R
 Daily Pivots
 Globex Pivots (Overnight Globex Market Review)
 Anchor Trend line
 Anchor Swing High/Lows
 Pre-Market Gaps
 (define in greater detail)
 0330 hrs. EST Monitor DAX for suitable trade opportunities…
 0330 hrs. EST Monitor US Futures for suitable trade opportunities
 1000-1200 hrs. EST - Morning Session US Markets
 1330-1530 hrs. EST - Afternoon Session US Markets
 1530-1600 hrs. EST – Close positions Futures (trailing or discretionary)
 Record and review day’s trades and activities
o Complete trading journal
o Annotate and save charts
o Review and analyze days performance
 Note: Trade activity to be entered real time as occurs when possible

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 AHG - Check Bias at door for (intra-day)
o Wait patiently for favorable trade set-ups
o Wait for confirmation

23.4 Trading Environment

23.4.1 Equipment / Hardware

 Redundant trading system’s configured with trading software & authorizations.

o Primary – Dell XPS710 Tower
 Processor Intel Core 2 Duo CPU 6600 @ 2.4Ghz
 (Memory RAM) 4MB
 Windows XP Pro
o Secondary – Dell Inspiron 9400 laptop
 Processor Intel CPU T2500@ 2.0Ghz
 (Memory RAM) 2 MB
 Windows XP Pro
o Multiple monitors 2 ea. Dell 30” & 2 ea. Dell 20”
o ABS Battery backup power supply
 Communications - Internet / connectivity
o Primary: Broadband ADSL
o Back up #1: Dial up connection
o Back up #2: GPRS / 3G cellular internet access, USB
 Printers
o Brother MFC-7420, Laser print/scan/fax with document feed
o HP C8111A, Color, Ink jet printer / portable
 Desk 6’ x 3’
 Ergonomic Chair
 File cabinets and book shelf
 Office Space 10’x15’

23.4.2 Software

 Tradestation Securities 8.3

 Interactive Brokers (TWS)
 Ninja Trader – Charting Front end
 Button Trader
 Bracket Trader

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 Quotetracker – Charting
 Stocktickr – www.stocktickr.com Trade log & journal
 Tradelog - www.armencomp.com Trade & accounting
 Microsoft office
o Word – word processer
o Excel – spreadsheets
 Norton 360 Anti-Virus
 Adobe Acrobat Pro
 FastStone Capture –screen capture

23.5 Expenses
23.5.1 Business Expenses (Start-up)

 Primary Computer– Dell XPS710 Tower $2,600

 Secondary Computer– Dell Inspiron 9400 laptop $1,600
 Monitors Dell 30” 2 ea. $2,800
 Monitors Dell 20” 2 ea. $700
 ABS Battery backup power supply $100
 Internet / connectivity
o Primary: Broadband ADSL $200
o Back up #2: GPRS / 3G cellular internet access, USB $200
 Software
o Microsoft Office $500
o Norton Anti-Virus $100
o Adobe Acrobat Pro $400
o Ninja trader, Button Trader or Bracket Trader (lifetime license) $1,000
o Tradelog – Trade & Accounting $300
o Stockticker – Journal $500
 Printers
o Brother MFC-7420, Laser print/scan/fax with document feed $400
o HP C8111A, Color, Ink jet printer / portable $200
 Desk 6’ x 3’ $500
 Ergonomic Chair $200
 File cabinets and book shelf $500
 Miscellaneous office supplies $500
 Office Space 10’x15’ (allocate) $1,000

 Total initial capital investment $14,300

 3-year amortization rounded to nearest $500 $5,000

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23.5.2 Business Expenses (monthly)

 Interactive brokers (Swing and position, Equities / DAX Futures)

o $10 -- Platform fee (Waived with $30 generated commission)
o $50 -- Data Fee (update)
o $.005/share -- Equities US (update)
o $5 round trip -- Futures US (update)
o $10 round trip -- Futures DAX (update)
o $250 -- Opportunity cost per ($50,000 deposited) (ref: 12% trust deed)

 Tradestation Securities (US Index futures, German Index futures, Back up Equities)
o $100 -- Platform fee (Waived with 10-round trips “$48 commission”)
o $50 -- Data fee
o $500 -- Opportunity cost per ($50,000 deposited) (ref: 12% trust deed)

 Wells Fargo Investments (Long term positions, Equities)

o $250 -- Opportunity cost per ($50,000 deposited) (ref: 12% trust deed)

 Internet Service Providers (Dual broadband ISP providers)

o $100 - ADSL (France Telecom)
o $60 - ADSL & Local Wifi Hotspot (Neuf Telecom)
o $100 - GSM 3+ (SFR) – (Back up ISP)

 Office expense
o $500 -- allocated
o $100 – miscellaneous

 Software
o $80 – (Button, Bracket or Ninja) Front end for TWS (Interactive Brokers)
o $50 -- Tradelog – Tax preparation software ($297/annual fee unlimited records)
o $50 -- Stockpkr (Trading Journal)
o $7 -- Quotetracker (secondary charting)

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 Total Monthly Expenses

o $1,200 – Fixed Expenses (rounded)
o $1,250 – Opportunity cost ($200K)
o $800 – Brokerage fees – DAX (5-trades/daily)
o $500 – Brokerage fees – E-mini (5-trades/daily)
o $150 – Brokerage fees – Swing Equities

o $3,900 Estimated Monthly Expenses

24 Trade Set-Up Checklist(s) - (to be defined)

24.1 Individual Trade Set-Ups - Basic Template (define in greater detail)

 Pattern Diagram (annotated with entry, stop, target, potential exit points)
 Determine Prevailing Trend
o Major 1 (anchor) (Daily)
o Major 2 (anchor) (10K cvb NQ)
o Minor (current) (1K cvb NQ)
 Identify Support
o S1 - Minor
o S2 - Major
 Identify Resistance
o R1 - Minor
o R2 – Major
 Identify Points of Interest
o Recent Swing Highs/Lows
o Daily Pivots
o Globex High
o Globex Low
o Consolidation Areas
o Gaps
 Money Management
o Pre-defined lot size Cars/Dollar amount
o Scale-In (average up)
o Scale-Out
 Entry
o Entry #1 = Initial
o Entry #2+ = Scale-in points
 Exit
o Exit # 1 = Initial Target

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 Minimum previous swing high/low
 Pattern height
o Exit # 2 = Scale-out points
 In trend: relative to prior pivots
 In trend: designated points per specific pattern
 Stop
o Stop #1 = Initial / Protective (capital)
o Stop #2 = entry (close to BE)
o Stop #3+ = Trailing
 Confirmation
o Confirmation #1
o Confirmation #2
o Confirmation #3
o (List confirmation signals – primary)
 Confirmation (magic) tick on the entry chart and/or anchor chart, prefer both
 Anchor and Entry Chart corresponding signal
 Confirmed 3bar-reversal at/or near trendline in direction of prevailing trend
o Confluence
o (List confirmation signals - supporting)
 Time and sales
 Frequency (and wave amplitude)
 (List warning and threat signals)
 (Define in greater detail)

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24.2 Trade Set-Ups with Diagrams - (to be defined)

 Reference Trade Chart Patterns Like A Pro, Suri Dudella

o Use entry, exit and stops as suggested for longer term trades
o Modify entry, exit and stops per AHG for short term trades
 (as annotated in individual set-up )
 Please Note: Diagrams and individual trade set-ups will not be posted
without the express authorization of Mr. Duddella

Trade Set-up to be condensed as best as possible

Following is possible items to be included
Sample Diagram
Entry(ies), Targets, Stops to be indicated on Diagram

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24.2.1 Trade Set-up Sample #1

24.2.2 Expectancy ratio – (Reference calculator)

24.2.3 Reliability of pattern

> High
> Moderate
> Low

24.2.4 Probability of Successful Trade

> 80 %
> 60 %
> 40 %
>      %

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24.2.5 Risk/Reward
Stop Target
> 4/1            
> 3/1            
> 2/1            
> 1/1            

24.2.6 Strategy – applicable

Long term
Position
Swing
Intra-day
Scalp

24.2.7 Validity period (N-bars)

3-bars
4-bars
5-bars
N-bars      

24.2.8 Entry

Entry #1 Close of break out/down bar +1 tick

Entry #2 Re-entry if stopped out and initial trade set-up intact
Entry #3 Position added at pullback to support
Entry #4 Position added – specific pattern strategy

24.2.9 Stop

Initial Stop #1 below/above entry bar +1 tick

Initial Stop #2 below/above previous swing high/low +1 tick
Initial Stop #3 per specific pattern set-up
Protective Stop #4 moved to entry (BE)
Protective Stop #5 discretionary (per diagram)
Protective Stop #6 trailing stop
N – Ticks      
N – Points      
N – $ Amount      
N – % of trade      

24.2.10 Target

Target #1 – Previous swing high/low (minimum) (define in greater detail)

Target #2 – Pattern Height (define in greater detail)

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Target #3 - Major Support/Resistance (define in greater detail)

24.2.11 Exit

Exit #1 - (define)
Exit #2 - (define)
Exit #3 - (define)

24.2.12 Money Management

Position and swing trades (position size)

5 % - of account
10 % - of account
15 % - of account
20 % - of account
      % of account / #       share’s / $      amount

Futures / intra-day Initial position (N-contracts)      

Scale out (#1) (N-contracts)       / Position size      

Scale out (#2) (N-contracts)       / Position size      

Scale in (#1) (N-contracts)       / Position size      

Scale in (#2) (N-contracts)       / Position size      
Scale in (#3) (N-contracts)       / Position size      

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24.2.13 Individual Trade Set-up Sample # 2

 Reliability = Moderate
 Probability Of Successful Trade = 60%
 Risk/Reward > 3
 Strategy = Intra-day
 Validity period (N-bars) = N/A
 Entry = Breakdown bar (signal) + one confirmation tick
 Stop = one tick above signal bar or previous swing high (dependant upon volatility)
o Moved to protect profits upon reaching initial target
o Trend line trailing procedure (moving stop at swing points)
 Target = Previous swing low

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o Secondary targets, next point of interest
 Exit = trend reversal after reaching initial target
 Money Management
o Single car size
o Scale-in
o Scale out
 Pattern Confirmation (Confluence)
o Anchor support (prevailing trend down)
o Fib-retracement levels (ME)
o Previous Swing lows
o Other points of interest

(define in greater detail)

24.2.14 Individual Trade Set-up Sample # 3 (drop down menu)

(Hint: Form lock document to activate drop-down menus)

 Reliability = moderate
 Probability Of Successful Trade = 60%
 Risk/Reward > 3
 Strategy = intra-day
 Validity period (N-bars) = 4-bars
 Entry = breakdown bar (signal) + one confirmation tick
 Stop = one tick above signal bar or previous swing high (dependant on volatility)
o Moved to protect profits upon reaching initial target

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 Target #1 = previous swing low
 Target #2 = next swing low
 Exit = trend reversal after reaching initial target
 Money Management = nominal lot size
 Pattern Confirmation (Confluence)
o Anchor support (prevailing trend down)
o Fib-retracement levels (ME)
o Previous Swing lows
o Other points of interest

(define in greater detail)

24.3 Specific Order Entry Procedures (to be defined in greater detail)

 Tradestation
o OSO
o OCO
o Bracket orders
o Auto stop
o Trailing stop
 Scale-out procedure
 Scale-in procedure

 Interactive Brokers (TWS)

o OSO
o OCO
o Bracket orders
o Auto stop
o Trailing stop
 Scale-out procedure
 Scale-in procedure

 Ninja Trader (Front end TWS)

o OSO
o OCO
o Bracket orders
o Auto stop
o Trailing stop
 Scale-out procedure
 Scale-in procedure

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 Button Trader (Front end TWS)
o OSO
o OCO
o Bracket orders
o Auto stop
o Trailing stop
 Scale-out procedure
 Scale-in procedure

24.4 Patterns traded (Ref: Trade Chart Patterns like a Pro, Suri Dudella)
24.4.1 Tops and Bottoms

Adam & Eve Patterns

Trader Vic’s 2B Patterns
Trader Vic’s 123 Patterns
Pipe Pattern
M & W Patterns
M-Top / W-Bottom
W-Top / M-Bottom (rare)
Round Top Patterns
Round Bottom Patterns
V-Top Pattern
V-Bottom Pattern
Double Top Pattern
Double Bottom Pattern (with trend, micro stop, one of best plays… R:R
Triple Top Pattern
Triple Bottom Pattern

24.4.2 Geometric:

Triangles
Rectangle Pattern
Flags
Wedge Pattern Patterns
Diamond Pattern

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24.4.3 Harmonic Patterns:

ABC Patterns
Gartley Pattern
Bat Pattern
Butterfly Pattern
Crab Pattern

24.4.4 ZigZag

ZigZag Patterns
Elliot Wave
Crown Pattern

24.4.5 Price-Action

Cup and Handle Pattern

Head and Shoulders Pattern
Failed Head and Shoulders Pattern
Parabolic Arc Pattern
Three Hills and a Mountain Pattern
Three Valleys and a River Pattern
Spike and ledge Pattern

24.4.6 Exotic Patterns

Dragon Pattern
Sea Horse Pattern
Scallop Pattern

24.4.7 Event Patterns:

Gaps
Dead Cat Bounce
Island Reversal Pattern

24.4.8 Channels

Rectangle
Donchian
Broadening (Megaphone)
Linear Regression

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Andrew’s Pitchfork

24.4.9 Bands

Bollinger
Keltner
Fibonacci

24.4.10 Additional Patterns

Uptrend / Downtrend line breaks

Piscuy “123” Pattern
Piscuy “Box”
Horizontal breakouts
BMW 3-Times-A-Charm (3rd trend line bounce, trend continuation trade)
Porn 69 3xTL-3BRfailure (1/10/08)
(dated incorporated in business plan to be entered)

24.5 Additional Thoughts

24.5.1 Five Fundamental Truths: (Douglas, Trading in The Zone)

1. Anything can happen

2. You don’t need to know what is going to happen next to make money
3. There is a random distribution between wins and losses for any given set of variables that
define an edge
4. An edge is nothing more than an indication of a higher probability of one thing happening
over another
5. Every moment in the market is unique

24.5.2 I am a consistent winner because: (Douglas, Trading in The Zone)

 I objectively identify my edges.

 I predefine the risk of every trade.
 I completely accept the risk or I am willing to let go of the trade.
 I act on my edges without reservation or hesitation.
 I pay myself as the market makes money available to me.
 I continually monitor my susceptibility for making errors.
 I understand the absolute necessity of these principles of consistent success and,
therefore, I never violate them.

24.5.3 Keys to Success

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 Discipline
 Patience
 Proper Attitude
 Bias (Neutral)
 Money Management
 Risk Management
 Well defined objectives

24.5.3.1 Discipline

 Strive for 100% discipline and consistency

 Always follow a pre-determined set of rules.
 You must have a program, you must know your program, and you must follow your
program
 Do not become complacent
 Never attempt to call Tops or Bottoms
 Successful traders have a well-scheduled planned time for studying the markets.
 If a market doesn't do what you think it should do, get out.
 When the ship starts to sink, don't pray - jump.
 The difference between winners and losers isn't so much native ability as it is discipline
exercised in avoiding mistakes.

24.5.3.2 Patience

 If not 110% confident in trade, sit-out

 Standing aside is a position.
 Continually strive for patience, perseverance, determination, and rational action.
 Do not over trade, be patient and wait for opportunities
 Never get into the market because you are anxious because of waiting.
 It's much easier to put on a trade than to take it off
 Treat it gently by allowing your equity to grow steadily rather than in bursts.
 Not only is patience required to enter a trade, but imperative for letting good trades do
their work.

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 Avoid getting in or out of the market too often

24.5.3.3 Attitude

 Keep a positive attitude, no matter how much you lose. Another opportunity will present
itself.
 Don't take the market home.
 Successful traders are not afraid to buy high and sell low (small stops will protect your)
 Successful traders buy into bad news and sell into good news.
 Beware of large positions that can control your emotions.
 Don't be overly aggressive with the market.
 Only take positions which you are comfortable with and can accept if trade goes south.
 You must believe in yourself and your judgment if you expect to make a living at this
game.
 Be humble - on every trade there exists a more experienced trader on other side

24.5.3.4 Bias

 Enter each trade with a neutral non biased mindset

 Trade the facts, remove all emotion
 Lose your opinion - not your money.
 Successful traders isolate themselves from the opinions of others.
 In the world of money, which is a world shaped by human behavior; nobody has the
foggiest notion of what will happen in the future. Mark that word - Nobody! Thus the
successful trader does not base moves on what supposedly will happen but reacts
instead to what does happen.
 It is better to be more interested in the market's reaction to new information that in the
piece of news itself.

24.5.3.5 Loss and Failure

 Nothing works all the time, small losses are inevitable

 Losses make the trader studious - not profits.
 Take advantage of every loss to improve your knowledge of market action.
 Accept failure as a step towards victory
 Expect and accept losses gracefully. Those who brood over losses always miss the next
opportunity, which more than likely will be profitable.
 Forget a loss quickly. Forget a win even quicker! Don't let ego and greed inhibit clear
thinking and hard work.
 Remember that a bear market will give back in one month what a bull market has taken
three months to build.

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24.5.4 Life Balance

24.5.4.1 Working from Home v External office

 (define in greater detail)

24.5.4.2 Marriage, Family & Trading (finding balance)

 (define in greater detail)

24.6 Back Test and/or Forward Test Results

 (To be Defined)

24.7 Additional Contributors

 ET member: c.profitt
 ET member: JJ-AW (Dusseldorf, Germany)
 ET member bmwhendrix
 ET member: fishoilfan
 ET member: Brutus boy
 IRC Chat Ops: Mekas

24.8 Additional Required Elements for Business/Trading Plan:

24.8.1 Trading Plan pdf – ref: Stealth http://www.online-futurestrading.com/Introduction

 Timeframe.
 Choosing an Instrument to Trade.
 The Trade Set-up.
 Entry Rules.
 Stop Loss Rules.
 Profit Taking Exits.

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 Ways to Improve the Profit per Trade.
 Money Management Rules.
 Conclusion.

24.8.2 Additional elements

 Calendars

24.8.3 Additional thoughts and comments appreciated

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