"Jens, the coaching humbled me, because I have been working in the industry a long time. Being with you was the first time that I really got to hear 'first hand' how day traders think. I've found there are many misconceptions that I built up over the years that I must now change — or I won’t be successful. Thank you for everything."

Richard

Your Business Plan

By Brandon Fredrickson
Recorded in the Tradingfrommainstreet chatroom

[18:02] <brandon> it's a good time for everyone to get their business plans together
[18:02] <brandon> to review
[18:02] <brandon> all of that good stuff
[18:02] <brandon> it always surprises me how few people actually have one
[18:03] <brandon> I will talk to people who are not doing well
[18:03] <brandon> and I will ask them what is their plan?
[18:03] <brandon> what is your methodology?
[18:03] <brandon> what kind of risk do you take?
[18:03] <brandon> How do you pay yourself?
[18:03] <brandon> how do you handle a drawdown?
[18:03] <brandon> and they have no clue to any of this
[18:03] <brandon> and yet they wonder why am I having a hard time?
[18:04] <brandon> because you are competing against Goldman Sachs, Bear Stearns and all the Market Wizards and everyone else
[18:04] <brandon> and I can guarantee you they have a plan
[18:04] <brandon> your business plan should be your road map to your ultimate success in trading
[18:04] <brandon> and needs to include what setups you will trade
[18:04] <brandon> what markets you will be active in
[18:04] <brandon> which ones you wont
[18:04] <brandon> what are your goals
[18:04] <brandon> how will you get there
[18:05] <brandon> with me so far?
[18:05] <brandon> y
[18:05] <brandon> You cant treat the market as a hobby and expect to come out ahead
[18:05] <brandon> this is very important
[18:05] <brandon> Hobbies cost us money
[18:06] <brandon> I think Mark Cook said it best in Jack Schwaggers Stock Market Wizards: ""If you decide to trade for a living, you have to treat it just like any other business endeavor and go into it with a plan. If you want to start a business, and all you do is walk into a bank, smile pleasantly, and ask for a $200,000 loan, do you think you will get it?
[18:06] <brandon> Are they going to say say, ""You have a really nice smile; here's the money"". I don't think so. You need to have a business plan. The trouble is most people start trading without any definitive plan.""
[18:07] <brandon> most people will fail as traders
[18:07] <brandon> and in most cases it is because they don't know exactly what they want, or how they are going to get it.
[18:07] <brandon> Many traders do realize the value of having a daily plan and they will spend some time scanning and looking at the news etc., but for some reason very few take put very much time into the big picture.
[18:08] <brandon> Unless you would call the big picture ""Make a lot of money, retire to a beach house in Malibu"" a plan.
[18:08] <brandon> The lack of a map to Malibu leads most traders to get lost in the desert on their way to the beach.
[18:09] <brandon> A business plan should include your primary goals.
[18:09] <brandon> I took mine straight from Trader Vic- Methods of a Wall Street Master by Victor Sperandeo.
[18:10] <brandon> That is, my primary goal is the Preservation of Capital.
[18:10] <brandon> This should be obvious since no one is going to buy their house in Malibu if they lost all their money in the market.
[18:11] <brandon> The next goal is consistent profitability.
[18:11] <brandon> Hopefully at some point trading can represent your primary source of income. Because of this you want to be consistent as possible in your profitability.
[18:12] <brandon> No is going to make money all the time, but you want it to be as steady as possible because we all have bills to pay.
[18:12] <brandon> The final part of it is ""the pursuit of superior returns"".
[18:13] <brandon> This also should be fairly self explanatory.
[18:13] <brandon> If I could put my money in an index fund and do better then I can by managing it myself, then I would be much better off doing that and keeping a job.
[18:14] <brandon> Then, I could continue to add money to the index fund on a regular basis, not have to live off it, and eventually I would be (in theory) very rich.
[18:14] <brandon> Now to get accomplish all of these things, you have to settle a few other issues.
[18:14] <brandon> Where will I trade?
[18:15] <brandon> There are offices all over in big cities you can go to (though many fewer then even a year ago)
[18:15] <brandon> many people will do a lot better in this environment then they would in any other.
[18:15] <brandon> It feels more like going to work then sitting in the spare bedroom, so for some people it is MUCH easier to actually work then.
[18:16] <brandon> For others they need the physical social interaction that a live room of traders provides.
[18:16] <brandon> other people want to trade from home and ""do it in their boxers""
[18:17] <brandon> for many people this represents the ultimate goal of sorts, though I would caution to those of you working from home it is easy to become distracted by the every day going ons of the house.
[18:17] <brandon> You need to be always vigilant that this is not happening to you, because when it does your profits will suffer for it.
[18:17] <brandon> After you figure out where you will trade, you need to know what you will trade?
[18:17] <brandon> Stocks?
[18:18] <brandon> Emini's?
[18:18] <brandon> Commodities?
[18:18] <brandon> Bonds?
[18:18] <brandon> Currencies?
[18:18] <brandon> some mix of these?
[18:18] <brandon> Maybe you will trade the Emini's
[18:19] <brandon> or maybe you will trade US traded equities. Specifically perhaps you will have a basic of the 200 most liquid stocks which are heavily followed by institutions and you will look for patterns in those.
[18:19] <brandon> How long are your trades going to last?
[18:19] <brandon> This really depends on your personality.
[18:20] <brandon> Im most comfortable when I don't have to hold a trade for a long time unless its in the commodities.
[18:20] <brandon> so for me my trades will generally last less then 15 minutes.
[18:20] <brandon> Im a very short term trader.
[18:20] <brandon> What patterns will you use to enter a trade?
[18:20] <brandon> so many people try to be the jack of all trades in the market
[18:21] <brandon> and ultimately they just end up the master of none
[18:21] <brandon> and eventually they are ex traders
[18:21] <brandon> you will do far better to choose something between 1 and 5 setups
[18:21] <brandon> and master those
[18:21] <brandon> ignore everything else
[18:21] <brandon> and focus on your bread and butter
[18:21] <brandon> built it slowly
[18:21] <brandon> and eventually it becomes something to really be proud of.
[18:22] <brandon> How will you place your orders?
[18:22] <brandon> How much will you chase a setup?
[18:22] <brandon> generally in a stock im willing to chase it between 2 and 5 levels
[18:22] <brandon> and in the Emini Nasdaq 1 point, and the SP about 1/2 a point.
[18:22] <brandon> Will you use limit orders? or market orders?
[18:22] <brandon> What broker are you going to use?
[18:23] <brandon> How much is this going to cost you?
[18:23] <brandon> charting and execution
[18:23] <brandon> what kind of computer connection are you going to have?
[18:23] <brandon> back up?
[18:23] <brandon> everyone with me so far?
[18:23] <brandon> y
[18:23] <brandon> yep
[18:23] <brandon> y
[18:24] <brandon> yes
[18:24] <brandon> y
[18:24] <brandon> Risk management is a critical part of your plan.
[18:24] <brandon> How will you handle a drawdown
[18:24] <brandon> How will you decide when its time to take time off.
[18:24] <brandon> Taking time off is not being defeated.
[18:24] <brandon> its living to fight another day
[18:25] <brandon> include something that keeps you from trading (or at least reduces your activity) during times of severe stress.
[18:26] <brandon> This would include poor health, divorce, death in the family.
[18:26] <brandon> Things like this.
[18:26] <brandon> Trying to trade in any of these kind of situations and you really might as well drive to Chicago and stand outside the Merc in the morning.
[18:26] <brandon> when you see the guys with a floor badge walk by, just offer to write them a check.
[18:26] <brandon> It will be easier, you wont feel like you worked so hard to give it up.
[18:27] <brandon> but that's what you will be doing anyway.
[18:27] <brandon> You also need to have some sort of daily routine.
[18:27] <brandon> When are you going to arrive at the office?
[18:27] <brandon> What will you do when you get there?
[18:27] <brandon> when do you take breaks?
[18:27] <brandon> How late do you stay?
[18:27] <brandon> plan your entire day
[18:27] <brandon> be the worst boss you ever had
[18:27] <brandon> and you will probably be one of the best traders out there.
[18:28] <brandon> How are you going to exit your trades?
[18:28] <brandon> I like to exit mine in chunks.
[18:28] <brandon> Take some of it off when my risk is covered and try to get a little bit more on the rest.
[18:29] <brandon> What is your trailing stop methodology?
[18:29] <brandon> How much capital are you going to have in your trading account?
[18:29] <brandon> And how are you going to allocate the risk with that.
[18:29] <brandon> by allocation of risk I mean how many contracts will you trade for X amount of dollars?
[18:29] <brandon> For myself, Im very comfortable with trading 1 Emini Contract per $10,000 of trading capital.
[18:30] <brandon> If I feel slightly more aggressive I will take it down to 5K
[18:30] <brandon> and if I feel less so I will bring it down to 20K per single contract traded.
[18:30] <brandon> you can consider outside factors in this.
[18:31] <brandon> for example, if you have a net worth of $3 million and you keep 50K in your trading account, you might be plenty comfortable to trade 1 contract for every 2000 in your account.
[18:31] <brandon> That would probably be fine in that situation, but for most people it would not.
[18:31] <brandon> So, there will be some variance, overall though I think that 10K per contract is the best in most cases.
[18:31] <brandon> It allows you to make a lot of money if you average just a little bit a day.
[18:32] <brandon> one thing i have put in as well is that I want a certain number of trades per day.
[18:32] <brandon> On most days there are between 2 and 5 good swings in the market that you can get if you are trading the indexes.
[18:32] <brandon> I tend to swing to extremes
[18:32] <brandon> I will be either lazy and not trade that much
[18:32] <brandon> or too active and take 20 in a day
[18:32] <brandon> so I have a number that I want to hit each day on the trades
[18:32] <brandon> I like to get 3 to 5 trades in each day
[18:32] <brandon> I feel this gives me the best chance to hit my goals
[18:33] <brandon> What are your goals?
[18:33] <brandon> Be specific in this
[18:33] <brandon> and commit too it
[18:33] <brandon> how much money do you want to make this year?
[18:33] <brandon> evaluate it
[18:33] <brandon> keep making progress
[18:33] <brandon> don't beat yourself over the head about it
[18:33] <brandon> but keep making steady progress.
[18:34] <brandon> anyway, this is what I have for tonight for you guys. I hope it gets some idea's rolling for you all.
[18:34] <brandon> As I said earlier today, I had 33 business plans sent to me, and then today I got 2 more..so the total is now 35.
[18:34] <brandon> This is excellent
[18:34] <brandon> each person who has one is increases their overall odds of success greatly.
[18:34] <brandon> thanks Brandon
[18:35] <brandon> b - could you circulate one or two with your comments (if they agree!)
[18:35] <brandon> I will look at each one of them, but it takes several hours to go over each one..so it might be into the first part of next month before i get to yours..but I will.
[18:35] <brandon> yes
[18:35] <brandon> I have woodrows up..but I don't recall the URL
[18:35] <brandon> I will try to find it.
[18:35] <brandon> i found woodrowkwc's very helpful!
[18:35] <brandon> great info
[18:35] <brandon> B
[18:38] <brandon> any questions or comments?
[18:39] <brandon> <_china219> great class
[18:40] <brandon> sorry got discod there for a sec.
[18:40] <brandon> have had inet trouble this week.
[18:40] <brandon> Thank you China.
[18:41] <brandon> b - how do you factor in the improvement factor? You're going to get better through time - how much do you think?
[18:42] <brandon> set your goals higher, start to transact in larger sizes, try out new markets.
[18:42] <brandon> just things like that is how I approach it.
[18:43] <brandon> any other questions or comments?
[18:44] <brandon> what is the best setup for a beginning emini trader to get started with
[18:45] <brandon> let me find something for you
[18:45] <brandon> this would take about an hour to type
[18:45] <brandon> but I have something posted about it, I just need to find it.
[18:45] <brandon> give me just a second.
[18:45] <brandon> to give you an idea on your net results schroe on just a little improvement
[18:46] <brandon> http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=18012045
[18:46] <brandon> Lets say your setups are 50% reliable with 2/1 reward/risk
[18:46] <brandon> 100 trades
[18:46] <brandon> 50 winners for lets say 10 units = 500 units
[18:47] <brandon> 50 losers for 5 units losses = 250
[18:47] <brandon> net profit 250 units
[18:47] <brandon> now
[18:47] <brandon> let's change it a little
[18:47] <brandon> and your setup is 60% reliable
[18:47] <brandon> 60 winners for 10 units = 600
[18:47] <brandon> 40 losers for 5 units = 200 units
[18:48] <brandon> net profit now 400 units
[18:48] <brandon> and the neat thing is you can reduce the $$ per each contract traded as you gain confidence.
[18:48] <brandon> so for 10% improvement in reliability of your setup
[18:48] <brandon> you nearly doubled your net profits
[18:49] <brandon> pretty cool
[18:49] <brandon> trade more contracts with the same $$$
[18:49] <brandon> it pyramids
[18:52] <brandon> I generally look for reward to risk ratio of at least 1.5/1 for myself
[18:52] <brandon> and more likely 2/1
[18:52] <brandon> but sometimes I will go as low as 1/1
[18:53] <brandon> all with your 15-5?
[18:53] <brandon> I use a couple other setups
[18:54] <brandon> but the 5/15 is an idea you can move up the time frame ladder
[18:54] <brandon> in fact yesterday I had a 15/30/60
[18:54] <brandon> i use a 10/5/2, but same idea
[18:55] <brandon> I will trade Phoenixes and Avalanches
[18:55] <brandon> and flags
[18:55] <brandon> Aikidoman, thanks for R/R refresher
[18:56] <brandon> B - to django's question, don't you thing phoenix and avalanches are "relatively" risk free? You're not catching a falling knife.
[18:56] <brandon> no you are not catching a falling knife
[18:57] <brandon> it has already proved itself somewhat that the reversal is likely
[18:57] <brandon> not completely
[18:57] <brandon> well as soon as I find something that is risk free
[18:57] <brandon> but that it is likely
[18:57] <brandon> I will be a hell of a lot closer to Malibu then I am here in Iowa :)
[18:57] <brandon> lol
[19:04] <brandon> B, read your class from link above, did u ever do that class on gaps?
[19:04] <brandon> there are a few on the site
[19:08] <brandon> If you specialize in Phoenix and avalanche..is it necessary to specialize further in stocks or futures? Could you conceivably trade both these markets and expect to be successful?
[19:08] <brandon> most people will not be successful trading both until they are successful trading one of them.
[19:09] <brandon> so, when you start, you should do either one or the other
[19:09] <brandon> for a beginner it seems natural to start on the stock side
[19:09] <brandon> I would argue that recently the mini's are much more favorable
[19:09] <brandon> it forces you to focus on one thing and not get distracted
[19:09] <brandon> interesting...even though the ticks are .25 or .50?
[19:10] <brandon> It seems so much faster
[19:10] <brandon> also the leverage allows you to get something out of the moves.
[19:10] <brandon> just trade a one lot
[19:10] <brandon> and puts a premium on order entry skills
[19:10] <brandon> the .25 is only $12.50
[19:10] <brandon> or the .5 in the NQ for $10
[19:10] <brandon> B, r phoenix and avalanche plays normally used with 2 min charts?
[19:10] <brandon> OK B I'm hearing you
[19:11] <brandon> they will work well in any timeframe
[19:11] <brandon> but once you get below a five minute it tends to all be more scalpish.
[19:11] <brandon> B how important is reading the tape for trading phoenix/avalanche and how does a beginner develop this skill?
[19:12] <brandon> same question for bear/bull flag if it's a different response
[19:12] <brandon> B, which time frame would you use if you were just trading 1 contract ES?
[19:13] <brandon> I think that for any trading tape reading is an important element
[19:13] <brandon> and its a skill that, unfortunately, you are only going to get by practicing it.
[19:13] <brandon> I'm finding that hard to learn while trading alone
[19:13] <brandon> so just watch them around key points and get used to how they act.
[19:13] <brandon> yes it can be a challenge.
[19:13] <brandon> Feel free to send us private messages during the day
[19:13] <brandon> or ask questions in the room as you need
[19:14] <brandon> there are a lot of people in the room who are very successful as traders
[19:14] <brandon> and they have been very helpful to people.
[19:15] <brandon> [22:16] <brandon> B, which time frame would you use if you were just trading 1 contract ES?
[19:15] <brandon> That brings up an interesting point, often when I get unsolicited help....it is extremely appreciated but i find myself asking how much weight to put behind the advice
[19:15] <brandon> there are many many ways to trade....and no one timeframe is really that much better than another
[19:15] <brandon> I think some of your things in the survey are going to address that though if memory serves correctly
[19:15] <brandon> it all depends on your style of trading
[19:16] <brandon> Aiki, if prefer shorter time frames.
[19:16] <brandon> yes they will
[19:16] <brandon> I tend to be up on a little bigger a timeframe than Toni, Brandon or Ivica as I am not a very good micro micro scalper
[19:16] <brandon> I'd really like to understand who is doing well in the room, but that is not something you can ask :-) I assume if they were given permission to talk in locked channels then they are making money
[19:17] <brandon> And I don't mean that from a nosy perspective, but just a who to listen to perspective
[19:18] <brandon> who to listen to....anyone who is a breakeven trader or better is a great trader
[19:18] <brandon> Aiki, I have never seen an Phoenix or Avalanche play on a 5 min chart, i have only seen them on 1 and 2 minute charts.
[19:18] <brandon> B will there be anything on the survey regarding perhaps a dedicated channel to certain setups?
[19:18] <brandon> what
[19:19] <brandon> lol
[19:19] <brandon> there are plenty of Phoenix and avalanches on 5min charts
[19:19] <brandon> I see em on 15min charts
[19:19] <brandon> even on weekly if you trade long term
[19:19] <brandon> Aiki, I would love to see what one looks like!
[19:19] <brandon> on 30min charts
[19:19] <brandon> To have 50 sets of eye scanning for avalanche and phoenix setups would be terrific
[19:20] <brandon> Toni and Ivica usually mention them
[19:20] <brandon> quite often
[19:20] <brandon> it's not an uncommon pattern
[19:20] <brandon> im not sure about that makityrs
[19:21] <brandon> but we will be open to suggestions that members have
[19:21] <brandon> and I also trade a variation of the Phoenix that occurs regularly at reversal areas on 5min and 15min charts
[19:22] <brandon> Aiki, what is that?
[19:22] <brandon> B have you ever considered getting members together? I'd make that trip in a heartbeat if it were put together
[19:23] <brandon> we tend to have get togethers at the expo's
[19:23] <brandon> and everyone is invited to those
[19:24] <brandon> could you publish a calendar for the room?
[19:24] <brandon> that could be helpful
[19:24] <brandon> I think we could do that
[19:25] <brandon> Aiki, can you find any recent examples in either the es or nq that I could go back and look at on a chart?
[19:25] <brandon> ive got to get some scanning done so i can be to bed before 2am guys
[19:25] <brandon> A weekend focusing on your setups and maybe a Monday of live trading for members who have been around for more than 3 months or so would be tremendous
[19:25] <brandon> so i will see you all tomorrow
[19:25] <brandon> Bye
[19:25] <brandon> had a nice class tonight
[19:25] <brandon> very nice session, B
[19:25] <brandon> thank you guys for coming and participating
[19:25] <brandon> thx
[19:25] <brandon> thanks B
[19:26] <brandon> ask me in the morning makityrs
[19:26] <brandon> <_china219> thank you
[19:26] <brandon> I am on my home computer, and not my trading computer
[19:26] <brandon> Thanks B
[19:26] <brandon> Aiki, great thanks, i will catch you tomorrow morning.
[19:26] <brandon> Aiki thanks for the good info throughout
[19:27] <brandon> thanks B
[19:28] <brandon> the most important a new trader can learn
[19:28] <brandon> is money management
[19:28] <brandon> and it's affects
[19:32] <brandon> I'm learning that lesson. I'm used to swing and position trading, but new to emini daytrading and being sloppy with exits
[19:34] <brandon> the lesson on money management is the same for index e-minis trading and stock trading
[19:34] <brandon> remind me
[19:34] <brandon> I will review the lesson tomorrow at lunchtime
[19:34] <brandon> sure, thx
[19:34] <brandon> it's important
[19:35] <brandon> so someone make sure to remind me
[19:38] <brandon> My problem is not being used to trading the smaller timeframes, I should probably pull back a bit and only trade 5min and up
[19:38] <brandon> I cant trade the smaller timeframes either django
[19:38] <brandon> so
[19:38] <brandon> I don't
[19:38] <brandon> it's not my edge
[19:40] <brandon> How do I replay chat I was gone
[19:42] <brandon> type /msg services replay #chat

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