Proven Trading Formula

Proven Trading Formula

Two things I love; trading and sports. The similarities between the two cannot be overstated. Each requires focus, skill, practice, and most of all, strategy. We can learn a lot about successful trading just by studying our favorite teams or players. Let’s discuss, in brief.

To preface…this isn’t a new concept to anyone, I write solely with the hope it serves as a valuable reminder.

Truly great traders, like great athletes, know success hides in the smallest, seemingly meaningless detail.

Trading, like sports, isn’t about hitting a home run every trip to the plate or landing that haymaker punch to finish a fight. No, its about finding little things that can gain you an advantage and then capitalizing on those small advantages incrementally. For your favorite team, success may be in great defense, efficient offense, or big play ability. In trading, success may be found in volatility, maybe it’s in great trade management, or possibly just great timing. Whatever it may be, the secret is simple, evaluate constantly and use that strength to gain an edge.

Which brings me to the purpose of this post…how to make that happen.

Proven Trading Formula = The Trading Plan

To be successful in this game we all must develop a plan. A battle strategy for each day we look to enter a trade. Without one we’re just gambling and that’s a guaranteed recipe for disaster. But we can’t stop there, we must continue to refine our plan and allow it to grow as our trading ability matures. Its in this manner that trading success manifests itself and leads to the development of habits which (hopefully) multiply that success.

My plan in a nutshell proceeds as follows;

  • Analyze the market for trend.
  • Scan for stocks that match that trend.
  • Determine options liquidity.
  • Study volatility.
  • Study the chart.
  • Read relevant news.
  • Look for high probability options.
  • Setup a trade.
  • Identify profit target zones.
  • Evaluate stop loss zone.
  • Identify entry zone.
  • Develop an options adjustment plan.
  • Determine capital requirement.
  • Enter the trade.
  • Monitor the trade.
  • Exit the trade.
  • Re-evaluate the trade and refine approach.
  • Begin again.

As you can see, its not the most fun wading through the mud of each section but it is the only proven trading formula I know or have ever seen. It’s this coupled with flawless execution that birth’s success in this business. Sure I agree, gambling is fun. It’s fun to set up low probability trades capable of making thousands overnight but that’s not realistic. So we must approach each trade with precision and focus similar to that of great athletes if we hope to have even the slightest chance at success.

Hope it helps in some small way.

May God bless and keep your trading profitable,

Jeff

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