Breaking the Trading Plan

The purpose a trading plan is not to shackle you down, force you to a rigid set of losing rules, or any other excuse traders make as to why they don’t have one.  The main purpose of a trading plan is to allow yourself all the flexibility needed in a time of fear by controlling it during a time of peace.  

Put another way, by designing your plan when the market is not open, or your positions aren’t effecting you, then you will not allow fear to take over when the market is open and those positions really are effecting you.  The most successful traders all have trading plans.  Whether completely written out or simply an internal process, success is not an accident for them.  Remember what Mark Caine said, “Meticulous Planning will enable everything a man does to appear spontaneous”.

Meticulous Planning Will Enable Everything A Man Does To Appear Spontaneous.

Let's Look at Today's Results & See This In Action

$294.25 made in under 12 minutes.  That’s more than the average american makes in 8 hours, this must have been a great day, right?

Absolutely not.  This is where traders confuse R’s with Profits.  

R=Risk Unit.  Whether a trader is trading $250 an R or $10 an R, either way, they should be risking 1 R when taking a trade.  The amount being risked is dependent on the skill of the trader, the amount of capital at work, etc.  

In R terms, if a trader risking $100 an R makes $200 then they made 2R’s on the day in profits.  If the next trader is risking $10 a trade but makes $40, then they made 4R’s on the day.  

In profit terms, the first trader obviously made more money, but in R terms, the second trader made more.  On a one trade basis, you could easily say the first trader is the better trader.  But over the long haul, this can change drastically.  This is important because lots of traders on social media will risk $1,000 and try to make $500 to $1,000 and look like a hero to the average joe.  

When in reality, that trader is doing little more than looking for a 1:1 payout and trying to use that result to promote themselves online, ultimatley for other intentions be that monetary or egotistical.  In either case, the traders that follow them on social media are focused on the dollar signs when the R Return Value is not worth it.  If they cannot copy that traders style to a T, then they will not have the finite success that the high dollar risk, low R return trader is getting.  This is exactly why so many traders get sucked into the cycle of following traders who win huge amounts of money but they can never copy the success.  

They are focused on the money and not on the true results.

Back to today’s results.  I typically risk $250 a trade intraday but with the high volatility lately pulled back slightly to risk around $220 per trade.  End Results in R’s Today: 1.3375 R’s or 1.34 for rounding purposes.

 My plan says 2:1 with a stop moved to break even at 1.5R’s.  Now let’s take a look at how this played out.

This is the CTP Calculator.  It tracks daily results for day trading and swing trading.  It also shows targets necessary depending on entries.  It’s available in our premium section if needed.  Today I traded 2 stocks, the SPY and IRBT.  SPY was a double test of the 1 minute based on the CTP Double Test which we actually teach and IRBT was a custom coded breakdown strategy.

If you’d like to get that double test teaching, you can sign up free here.  You can learn this exact same strategy we traded today by signing up to our CTP Group Email List.  

Let’s take a look at these setups here.

The first trade was a breakdown using a custom coded combination.  When they fire the signal together for the first time on the day, you want to pay attention.  You can’t see in hindsight what I saw on the break, which means I saw something that wasn’t really there.  IRBT was taken at $65.15 with a stop at $66.25.  The 2:1 Target was $62.95.  This trade was taken at 9:03 central time.  80 minutes later the current price is $61.00, this would be a 3.77R profit and I exited at break even.

My plan says once in, target is 2R with a stop moved to break even at 1.5R.  I can push past 2R if I lock in at least 1:1 when 2R is hit.  As in IRBT’s example, this would have been an excellent trailing option at the trade just hit 4:1.  Instead, it broke down and immediately popped back, and I exited break even. 

My plan said not too, and I can count the number of times one hand I’ve broken my plan this year, yet I did today. 

End Result: Break Even. 0R’s.

End Result of Plan: 2R+

The Second Trade was the SPY.  This was a double top retest CTP Style.  We teach this exact setup to new CTP Group members.  It takes 60 seconds or less if you’re interested.  I took SPY on the confirmation using my plan.  $267.69x$267.20.  2:1 Target was $266.22 with the option to trail for more.

When SPY got down to the previous pivot low and held, I was already out IRBT break even after watching it go 1.8:1 without me.  I had broken my plan once already which frustrated me.  I was now looking at a trade up 1.3 and thinking how pissed I’d be if this one takes a loss after IRBT fiasco.  I overrode my plan a second time and jumped.  This is the power of journaling, you must recreate as best you can your reason so you won’t make the mistake again. 

Within 4 minutes 2R was hit, and as of this writing, the price has reached $263.68 which would have been 7R+.

I’m not saying you get the bottom on these moves, I’m just showing max potential.

Actual Results: 1.34R

Potential Results: 2R+

The Plan Wins Out

Combined potential results are 4R+.  Combined actual results are 1.34R.  At $220 a trade that means my plan made $880 (less commissions) and I made $294.25 including commissions.  Remember at the start where I said I made more money in 12 minutes than most make in a day yet I screwed up, now do you see why?

This is why we have trading plans.  The absolute flawless simply never break their plans once they are built.  I consider myself a few steps under that but try extremely hard not to break my plan.  The few times I do break it however, the end result typically compounds itself in the wrong way.  This is why the trading plan is so important.

It’s built when the market isn’t moving.  It’s built when your mind is clear.  It’s built in a time of peace so that when the time of risk comes, when that potential time of fear comes, you have something stronger to help you overcome it.  

And yes, there will be times when you think the plan wasn’t built for this, I need to override it.  Considering the market is moving on average 200+ points this week, you could absolutely make this case.

Yet even with higher volatility than normal, the plan has still beat me by over 1.5x today.  Imagine what could happen in a week if this was a regular occurrence!

This is why when the plan is built, you have to follow it as best as you can.  And on those days you break your plan, you need to consider shutting down.  Something inside you is so off today.  Accept it, Improve it, and try again tomorrow.  The market is ready and waiting.  

Going forward, I will remember this day like many of the others when I violated my plan.  I understand nothing works every time, but being consistent with a proven setup gets me so much further than intuition based on tick fever.  My plan is designed to help me succeed, and help me overcome myself.  I’m still human and I will still make mistakes.  But if I remember mistakes are what successful people call experience, then I won’t be so hard on myself.  I will use this experience next time to try a little harder to stick to my plan.  One trade at a time. 

The plan is built when the mind is clear so when risk comes, it can be overcome.

Market Selloffs

Whenever the days turn red, traders begin to think the worst.  Instead of joining the crowd, let’s instill some common sense and rules so that next time your stock takes a hit you’ll have a better understanding of knowing what’s really going on.

First and foremost, we need to establish some definitions.  The market uses closing prices for these numbers, which means the daily close.  This is important as using the highest high or lowest low may get you there quicker, but it doesn’t mean the market agrees.

Pullbacks: Any retracement in the market or equity which is less than 10%.  This can happen any time for any reason.  Typically, if it’s less than 3%, it shouldn’t even be on your radar.  Knowing when to ignore the noise is an excellent thing to do.

Correction: Any retracement in the market or equity which is greater than or equal to 10%.  These are steeper corrections that  on average happen about once per year in the general market.  If you’re trading a high beta stock (highly volatile) this may be happening weekly.  As a rule of thumb, expect this in the market on average once a year.  

Note: In 2017 the S&P 500 never experienced a correction.  Average means just that.  The past is there to base assumptions on but never there to concrete the results.

Opposite Trend: Any retracement in the market or equity which is greater than 20%.  Typically, there is also a time rule on here of at least 2 months.  This keeps gaps based on news/earnings that may correct themselves over the short term from being classified back and forth.  There should be little whip saw in terms here from a bullish to a bearish trend.

Let's Look at the Past to Learn for the Future

This is a Weekly Chart of the SPY from ’08 to ’12.  If you are constantly trading by your own rules, then this may be of no value to you.  However, if you prefer to go a more mainstream route when considering trend definitions, then study this chart.  Take it all in.  Whether you traded during this time or only learned about it afterward, the definitions of trends can help you go along way.

The Red Box is when the bullish trend turns bearish. 

Remember, it takes a 20% retracement from the highest or lowest close to change the direction of the trend.

The blue boxes are all considered corrections.  These are all areas that retraced greater than 10% but did not reach a 20% move.  

Notice the first correction technically happens before the bearish trend officially begins.  Had you tweaked the numbers to highest high/lowest low you would have reached 20% and immediately gone into a correction.  Had you instead used the highest close argument you would have stayed away from looking short until the red box closes and would have immediately produced a winning short.

However, this may have kept you looking long on the pullbacks which should have produced a decent winner on the shorter time frames when the market retraces early on, but this should show you why first and foremost you must decide if you are going to use highest close or highest high.  Everything changes based on how you determine the starting point and this must be decided before not during the process.  If unsure, remember the majority uses highest close.  This is just one more part however that comes down to you trading what works for you.

The green box is when the bearish trend turns bullish.  At this point, price has retraced 20% from it’s lowest close and the market goes long for the next 8 years.  Notice the two corrections that happen in 2010 and 2011.  This should show you that corrections can happen quickly after a market trend changes and they happen on average once per year.

Now that you’ve seen this in action, let’s look to the present.

The SPY must reach $257.92 to enter a correction.  This means even as nasty as this roughly 5% pullback is, it’s still just a pullback.  The fact that this did not happen in 2017 should not scare you because it’s finally happening in 2018.  It’s just part of trading and should be expected, not feared.


The SPY must reach $229.27 to turn to a bearish trend.  Remember, if price closes below $229.27 on a daily time frame, the market will officially be bearish, but this doesn’t mean you should expect it.  

In the current state, the market is in an aggressive pullback.  While it may be tempting to throw up a #BTFD and get in there, stop, and think.  Ask yourself is this part of my plan?  If this a % based buy or simply looks enticing because at one point it was $285?

The key to trading this properly is knowing what your plan says, and sticking to it.  

If you have a plan, and know how you’re going to trade this type of pullback, then the last thing to do is recognize that you have to ignore the noise.  

On Social Media, there will be plenty of bears saying this is it.  This time it’s it.  This time everyone’s going broke.  While it very well may be, it seems strange to bet against the US, but maybe that’s just me.

Next time, instead of paying attention to that noise, trust your plan.  Trust the knowledge you’ve gained knowing the current numbers the market must hit to truly change course.  Understand that if new highs come, these numbers again change.  Always based simply on the 10% and 20% rules. And finally, as always, only trade what works for you by trading your plan.

If you are unsure of what to do with this new information, head over to our strategies section and learn the price channel breakout.  It’s  must easier to buy the dip when it’s making a new high on a smaller timeframe.  If you liked what you learned today, make sure you join the CTP Group to get more information just like this every few weeks. And last but not least, Trade Your Plan.  It’s the best edge you’ll ever have.

The 5 Mental Phrases You MUST say every day to succeed in trading.

Have you ever seen a salesman just before they give a big pitch?  The bad ones look nervous, sweaty, out of place.  The great ones look confident, excited, prepared.  Sometimes you might even catch them looking in a mirror almost muttering to themselves.  Yet when the day is done; the sale is theirs.

How is this?

Mindset.  Having the skills to do the job with the confidence to do it well.  This is an incredible combination, and that muttering you sometimes see is really them telling themselves their own phrases to succeed. 

While anyone can learn how to trade; not everyone will succeed.  The setup may be the same, the temporary loss may be the same.  Yet one trader may look at the loss and jump, while the other sticks to their plan and wins.  If you gave the same winning tip to 5 traders you’d have 5 separate outcomes because they would get in their own way.

How do you solve this problem?  Like any other problem; Mindset.  Things will go wrong, but the traders with the best mindset will outlast any other trader over a long enough horizon.  Even if the weak minded trader has a better plan, more capital, and more time, the trader with a stronger mindset will come out on top 100% of the time over a long enough timeline.

Why?  Because with the right mindset; everything else catches up.  With the wrong mindset; everything else get’s passed.  

Here are 5 phrases you must start saying to yourself every single day if you want to become a professional trader.  Say them when you have trades on, say them when you have nothing on, say them when you are backtesting, say them before you go to sleep.  Develop a strong mindset, and everything else will be easier to come by.

#1.  Don’t Waste a Day.  

Success in trading takes time.  Everyone gets so jacked up and ready to knock it out after a long webinar weekend and after a few set backs they’re ready to throw in the towel by thursday.  Stop focusing on beating this game in a week.  Focus on accomplishing something every single day that gets you closer to your goals.  Some days may have significant progress; some days may be baby steps.  As long as you live by this mantra 7 days a week, you will get there.  

No access to a monitor?  Read.  No access to a book?  Think about a winning setup you recently saw and how to build off that.  No time to think that out?  Say your 5 phrases and build up your mindset.  

Do something Everyday.  No Exceptions.

#2. Would the trader I want to be in a year do what I’m about to do today?

Building on #1, this takes it to a whole other level.  You can get too exact with this and stop doing everything but trading, however, that’s not advised.

What is advised is focusing on what you really want.  Are you studying to be an equity swing trader?  Then focus on that.  Stop considering day trading strategies because that’s not who you want to be in a year.  Are you wanting to have a $10,000 account to trade with in a year?  Then stop eating out 4x a week and start saving it.  This phrase can be taken as literal or as little as you want it.  Under no circumstances should you sacrifice family time or family expenses here, that is not the goal.  Simply make sure you’re not putting yourself ahead of your year away self very often through this.

#3.  Hard Work Beats Talent when Talent Doesn’t Work Hard.

Ever seen a winning team coast by because they think they got it made, only to get passed over near the end of the game?  There’s a reason most teams don’t stay champions year after year.  Most success results in mediocrity; you’ve got to keep at it.  There’s always someone hungrier than you, and if you coast, they’ll pass you by.

#4.  Reward Effort More than Results.

Stop looking at your bottom line first.  You can take an awful trade and make money and a great trade and lose money.  The key is looking at your tracked trades and seeing how many trades were part of your plan. 

If you follow the CTP way you won’t go live until you prove your plan out.  If you are live with a proven plan and all 20/20 trades for the month were part of the plan then reward yourself at the end of the month whether you won or lost.  The plan has proven itself out over the long haul.  A bad month should only be a bad month if your efforts were bad, not your end P&L.  That will handle itself over the long haul.

#5.  Can’t Stop.  Won’t Stop.

There will be days when you want to give up.  Days where your plan fails 100% of the time.  Days where you just can’t see yourself doing this for another week let alone another year or longer.  

When this happens, remember why you started here in the first place.  Remember what got you to this point.  Once you remember that, just tell yourself “Can’t Stop.  Won’t Stop.”  Say it over and over and over again until you believe you will not stop until you succeed.  Then do something about it.

Analyze what went wrong, track your data, look at old data to compare, go get some exercise and clear your mind, get yourself back in it.

Once you’re back; say these 5 things again.  You’ll start to see things differently.  Start to believe you really cannot stop until you succeed.  Because you’re starting to have a mindset of a winning trader.