“Plan your trade and trade your plan”
“Treat trading as a serious business”
“Bulls win, Bears win, Hogs lose”
How many times have we heard/read those words, or something to their effect? Trading can be as unstructured and wide-open a venture or a structured and quantified approach as we dictate conditions and parameters for.
There are two general schools of thought when it comes to operating a trading method or approach. One side believes we should trade every minute of every day, trying to maximize all potential profit opportunity without missing a beat. Another side believes it is prudent to target specific goals and if hit, bridle back or shut down for the duration until next period arrives. In other words for intraday traders, trade all day every day or trade for x-dollar profit and call it a day until next session.
That’s a two-side discussion which will never find everyone in agreement. Common logic (coupled with human greed) points to the fact that some sessions or periods offer outsized profit potential. It’d be foolish to quit early and pass up large gains when presented. The competitive nature ingrained in most gamblers (gamers = game) who are likewise successful traders scoff at the notion of walking away while cards remain on the proverbial table. Anyone who has traded through periods of high volatility and extreme price action for days or weeks at a time can attest how easy it is to amass weeks’ or months’ worth of gross profit in rapid fashion there. Then there is the aspect of judging trader performance based on potential profit opportunity. If a session or stretch of time offers x-percent profit potential, a trader would be successful only if he/she realized y-booked gains.
All true to various extents. But no trading career is ever based on extreme market conditions. High volatility and large-range sessions are a welcome gift when presented. A brief, welcomed gift. Unfortunately, that end of the bell-curve measuring “normal” price action is no more common than dull periods with tight-range choppy price action as well. Results realized through any extended periods of time include brief blips of wild markets and huge profit potential, what we’d consider normal market movement as the bulk of time and likewise dull market action to offset the wild times before.
What if we opted to construct a business plan based on steady, consistent performance objectives that are reasonable to meet on a regular basis? Instead of grading our performance relative to max potential gains every day, what if we graded performance on achieving reasonable goals averaged consistently over extended periods of time?
As an example, here’s a business-plan objective created for one trading application of my own. Let’s look at that and see if any benefits exist:
ES Trading Business Plan
Trading S&P 500 futures (ES) based on (your choice) method approach with management objective of realizing (your choice) gross profit per session. Trader’s option to continue trade efforts that day if conditions warrant OR shut down with profit objective goals successfully met. Regardless of how or why, cease all trading efforts if/when max loss intraday of (your choice) is hit.
+4pts ES gross gains (example) targeted daily.
-8pts ES gross loss (example) max loss shutdown.
$5,000 beginning balance = two ES contracts per full-trade size position
1/2 size = one ES contract
full size = two ES contracts
2x size = four contracts
100% Objective Attained
ES +4pts daily x 21 trading sessions (on average) per month | +84pts ES per month
+4pts x two contracts full position | +$400 daily gross gain
+$400 daily gross gain x 21 trading sessions | +$8,400 monthly gross gain (+168% monthly = +2,016% annualized r.o.i)
50% Objective Attained
ES +2pts daily x 21 trading sessions (on average) per month | +42pts ES per month
+2pts x two contracts full position | +$200 daily gross gain
+$200 daily gross gain x 21 trading sessions | +$4,200 monthly gross gain (+84% monthly = +1,008% annualized r.o.i.)
25% Objective Attained
ES +1pt daily x 21 trading sessions (on average) per month | +21pts ES per month (+42% monthly = +504% annualized r.o.i.)+1pt x two contracts full position | +$100 daily gross gain
+$100 daily gross gain x 21 trading sessions | +$2,100 monthly gross gain
In my opinion it’s unrealistic to think that anyone can frequently and consistently capture large percentages of intraday potential profits. Needless to say, just about everyone has toyed with a progressive table at one time or another and pondered possibilities. Start with a few dollars, compound that for awhile and sooner than later we’re talking gazillionaire. How much fun that would be. But that isn’t the true strengths of a progressive table as demonstrated above.
What if we held ourselves accountable to the concept of steady, consistent performance unattached to market behavior? In other words, if we manage to accomplish even 25% of that stated objective on a yearly basis, would that alone be considered a success? If so, would it make sense to judge our individual performance against any other measure? Too many times a trader will be their own worst boss when it comes to judging performance. Holding oneself accountable to unreasonable standards only leads to one end: mental self-destruction. You’ll literally drive yourself insane trying to achieve goals set outside of reasonable reach.
On the other hand, if we can visually see that small to modest incremental growth does lead to potential results acceptable enough in the end, that can serve as a guideline of measure to keep us grounded. Considering the very top-rated futures CTAs manage to attain roughly 200% annual returns, is it reasonable to believe anything similar regardless of initial start-up capital is equally admirable? Retail traders who begin with $5,000 and end with $25,000 total without compounding at year’s end accomplished the exact-same mathematical feat as professional CTAs who began with $500,000 and ended with $2.5 million. The sole difference is perception… aka “spendable” dollars in the end. There may be slight to vast differences when in comes to emotional management with small accounts versus large, but the science or math goes unchanged.
Traders need some sort of measuring stick to follow as a guide for measuring performance and production. It cannot be ridiculously low or unreasonably high to achieve. The term “reasonable” always returns to mind. Basing some type of table on personal ability, potential from market(s) traded and other known variables are pulled together for comparative measure. That type of baseline gives us permission to target realistic goals rather than unrealistic or even unstructured goals of performance. Many traders desire while others eschew such business plans. In the end we’ll all end up somewhere. How we get there and why is up to each of us along the way.
Austin Passamonte is a full-time professional trader who specializes in all commodity markets. Mr. Passamonte’s trading approach uses proprietary chart patterns found on an intraday basis. Austin trades privately in the Finger Lakes region of New York. Click here to visit CoiledMarkets
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