This week we are going to dive deeper into what makes a good trading plan. But before we begin I’d like to share a little anecdote from my earlier years. As a football coach at the high school and college level, preparation was the difference between winning and losing. Preparation was critical for success not only physically but mentally and emotionally. Our playbook was our “Bible”. In a football game, eleven moving parts must coordinate at all times. A breakdown in any one of the parts would generally lead to failure. Similarly in the trading business, preparation and planning are essential elements that lead to success. A key ingredient that leads to success involves setting REALISTIC EXPECTATIONS on what can be accomplished. We all have varying capacities to execute successfully in the markets based upon:

· Knowledge base

· Experience

· Ability to tolerate risk

· Time commitment

· Ability to analyze data

· Ability to adapt

· Ability to make decisions

This is not dissimilar to what I faced as a football coach. I had to evaluate

1) Personnel match ups

2) System match ups in order to try to exploit weaknesses in the opponents’ offensive and defensive schemes.

3) Tendency analysis based upon down, distance, hash mark, zones, personnel and quarter of the game.

Compounding all of that, each week we faced a different opponent with a whole new set of variables. I share this with you because the stock market is not necessarily your friend. There are people out there who want to take your money and if you enter into this game unprepared, you will most likely be crushed! You have got to scout your market and have a game plan that enables you to best trade the market at hand.

It is crucial that you begin with “Realistic Expectations”. Do not expect exorbitant returns when you begin trading. When I began trading, I didn’t have a clue about what I could expect. I was brainwashed by the hype in the industry that I could achieve triple digit annual returns on capital invested and if I didn’t, I was doing something wrong. Can you achieve 100% plus gains in the market annually? Absolutely, however, those types of gains rarely happen without assuming a commensurately high levels of risk. Some strategies and markets lend themselves more readily to out sized gains. Long options in the futures and forex markets can result in tremendous account appreciation, but you can lose the farm there too if you don’t know what you are doing! You can also achieve large gains in the stock market with long options on high beta stocks.

So, when I began trading, I felt the need to achieve the BIG returns until I took some BIG losses. Then I realized that there were (for me) some more conservative and responsible ways to trade. Please don’t misunderstand me, that type of trading wasn’t for me and it was irresponsible for me to engage in it. It may be perfectly fine for you. It gets back to including expectations into your trading plan. I realized the magic of compounding returns on lower risk strategies that consistently worked. My plan was more like the old “3 yards and a cloud of dust” offense in football as opposed to the long bomb passing game.

The bottom line is that I suggest you align your expectations with your risk tolerance and time commitment to follow the markets. I also discovered that I didn’t want to sit in front of a computer all day afraid to take a bathroom break for fear of the market reversing on me. I didn’t need to get an adrenaline rush from my trading activity. I adjusted my plan to fit me and it started with mapping out REALISTIC EXPECTATIONS.

Well, the “Merry Band of Traders” were expecting me back to Sherwood about an hour ago and I’m late. Poor planning can you get you in trouble! Until next week. Robin