When we decide to pursue trading as a career, the first thing we do is seek out as much market information as possible. We search the wellspring of the web, we read books, and attend seminars. Then, we read some more books and attend more seminars until we acquire so much market information that our problem becomes information overload.

I am not suggesting that there is anything wrong with this search.  However, at some point – preferably earlier rather than later – in a trader’s development, all that knowledge has to be distilled, refined and incorporated into a set of clearly defined execution rules.  When students ask if I could review their trading plans, I gladly oblige. Upon delving into their plans, I notice some patterns.

First, most of the trading plans I review seem to be lengthy (five pages or more).  I do not have any issues with that; it is what I fail to see that needs addressing.  For the most part, these plans are replete with vague ideas, theories and concepts.  Frankly, they have little in the way of telling when to put on a trade, how much risk to assume, and under what conditions I take profits.  In other words, very few of these trading plans that I evaluate outline a set of clearly defined execution rules.

After I make suggestions on how to improve their trading plans, I send students back to the drawing board to work out a framework of specific conditions that would act as triggers for either entering a long trade or a short sale.

This is an excerpt from Feb 2009 issue of Trader's Journal. To view the complete article, please click here.