Trading and the importance of a plan

By Joe DiNapoli

 1. Loss of opportunity is preferable to loss of capital.

There was a time when I felt it was my duty to be personally involved in every wrinkle of the S&P. I’ve traded this market since it’s inception in 82. It took quite a while for me to realise that picking safe, readable, and high probability winning trades was the way to go.

2. Use Logical Profit Objectives for all positions.

The concept of using and executing LPOs is one of the most important I know of. It keeps your percentage of winning trades high and gets you back to the computer the next day. Everyone enjoys a pay day. With the correct concepts this is something you can do.

3. Place your Logical Profit Objectives in the market ahead of time. Markets are squirrelly animals. If you know how to calculate your profit objectives, get them in the market ahead of market action. If you wait for the alert to go off, hoping to capture more, it’s likely the market will move away from your exit before you have time to execute your order.

4. Enter markets on retracements.

Don’t buy new highs or sell new lows. Wait for the market to come to you. Precalculate your entries and be patient. If you miss the move another bus will come by shortly.

5. Above all, follow your trading plan.

Having a clearly defined trading plan is the single most important aspect of profitable speculation. Never trade without one and once you have it, following it is more important than any single profit or loss.

6. Trade quietly.

With the exception of a mentor, tell no one about your positions, profits, or losses. Especially those close to you, like your wife, husband, or friends. This self-gratification process or sharing process puts you under psychological pressure to win on every trade and can be a primary reason for failure to follow your plan.

7. Don’t carry a sizeable position while traveling.

It will catch you!! The laptop won’t work. The hotel internet connection will break. The cell phone battery will run out. The plane won’t land! I know you’ll try it anyway. It’s good for the markets, we need to spread the money around a bit.

8. ‘You are only one trade away from humility.’

For over 15 years this tattered hand-written sign, scrawled with bold black strokes with a magic marker, has hung over my trading table. A swelled head does not belong on a trader’s shoulders.

9. Add to your knowledge before attempting to add to your wallet.

This seems obvious but somehow many newbie traders think they can become pros with little more than a computer and hope. In this business hope is a four letter word. I hear the following a dozen times a month. “I only wish I came across you before I blew 50-500 grand.” I was here. Others like me were here. They thought it was easy and needed to find some humility. Now they’re ready to progress.

10. Develop your sense of humour.

You’ll definitely need it.

11. Help other traders whenever you can.

This is more practical than philosophical: giving keeps the ego in line and when you need help, and you will, you’ll find it!