How to Create a Profitable Trading Plan

…..

Tsunami Trading Educators, Inc

——————————–
As the old adage goes, start with 2 million right?  No, seriously we believe that wise money management is the determining factor to all trading strategies, and what ultimately will determine a successful trader from a consistent loser. Many a trader has fallen to the wayside, trying to make a million dollars in one trade, when they would probably be better off making small steady gains and working their way up the wealth ladder.  It’s the old story of the Turtle vs. the Hare and unfortunately, in trading Futures, due to the high leverage, “the Hares” are the ones who blow out their accounts while the slow and steady “Turtles” often will be the ones who are around long enough to win the day.

Another reason why successful long term trading can be so difficult to achieve is the emotions wrapped up in the money we trade.  If we are in our minds, equating the money on the next trade with our own money, the rent money, the kids’ tuition money, our mortgage, we are on a certain freight train to trading failure.   If it’s money you can’t afford to lose, its money you simply can’t afford to trade.  If we attach our emotions to the money at risk, we are much more likely to commit trading errors which is as bad a malady as having a bad system to follow.

Making a million dollars a year in trading is a Holy Grail for us all.  Although admittedly difficult to achieve, if we divide the task up into small achievable gains, perhaps a few of us will reach the goal.  Money management is the key.  What we mean by this is proper position sizing, which is always knowing how many contracts to trade with the very next trade.  There is a way to achieve your trading goals with the least amount of emotional distress and in a relatively short period of time.  We will divide the task into 3 steps.

1. Analyze your current trading methodology and decide what a highly achievable profit goal on most trades is.
2. Make that per trade profit goal or twice that, your total daily profit target.
3. Use as much as possible Other People’s Money, trading only 1 contract until you have attained at least 10x your daily profit target in bottom line account profits, then and only then can you trade another contract.

Step 1.  Decide upon a highly achievable per trade profit goal.  Whatever methodology of entry you currently use, decide what amount of profit is highly achievable for most of your trades.  Our software program, TsuBot –Your Automated Trading Assistant uses Price Volume and Momentum in her trading algorithm and verbally, visually, and email alerts us of high percentage trade entries, three profit targets and a stop.  Real-time and historical testing across multiple markets and time frames has demonstrated that the first profit target is reached in about 75-79% of trades overall with TsuBot.  We analyzed recent Eurocurrency market volatility and decided that 24 tics or $300 per contract was achievable in most cases in the Eurocurrency futures.  That became our per trade profit goal.

Step 2. Because we decided that making $300 per contract on a per trade basis was also a nice daily profit target, we let that single per trade profit goal be our daily profit target as well.  Why stop at only one or two trades you might ask?   Why not!  We all must remember what we are trading for, and that is in most cases for Financial Freedom, but also to live a better life.  We don’t know about you but sitting in front of a computer monitor trading all day is not the best way to spend your day!  Make your money and get up from the tables!  You took the casino’s money and now go enjoy the fact that you are becoming a consistent winner!

Step 3. Make your daily profit target at least 10x before you allow yourself to trade another contract.  If our daily profit target is $300 per contract, we must add to the account bottom line, 10 X $300 = $3000 per contract to increase the number of contracts we trade by one.  Why 10X?  Why not again!  Let’s make ourselves and our system prove consistent profitability, before putting more of our account at risk.  And since this is a zero sum gain, guess where that $3000 per contract will have come from when you make it?  That’s right OTHER PEOPLE!  So we only trade one contract when we are just starting out, when we are most likely to commit trading errors.  The damage, if we make a mistake, will therefore be minimized until we can get up to speed and learn the ins and outs of our particular system or market.  If we are trading just 1 contract, blowing out our accounts, if properly initially capitalized (if trading the e-minis starting with a minimum of $5,000 -$7,500), should be less likely.  And when we have made at least $3000 in profits, we should have reached a more emotion-free state of mind, as we are starting to trade with Other People’s Money!  This also acts as an automatic risk management mechanism.  As our account balance goes up, we can trade more contracts.  As it falls, if we or our chosen system starts to fail, we will automatically reduce our trading size and risk less of the account, until we can right the ship once again and get back on the path to consistent profitability.

As you can see, from this spread sheet, even trading only 2 contracts, and making consistently $600 a day is the equivalent of an annual salary of $144,000 a year, which is certainly more than enough to improve on anyone’s quality of life!  What if we took this daily 24 tic gain, or $300 per contract, and kept doing it day in and day out?  Just make a boring 24 tics a day and increase trading size by 1 contract for every $3000 per contract gained.

If we were able to master this 24 tic daily goal, we would be increasing our trading size 1 contract every 10 trading days.

On the 131st trading day, we would be at 14 contracts and be making over 1 million dollars a year trading! Can this really be done?  Certainly it is possible as the math does not lie.  However losing days and losing periods are not factored into this spreadsheet which is inevitable with all trading systems.  However hopefully, this will give you some food for thought as you formulate your own trading business plan.

But can it really be done you still ask?  One of our Tsunami TsuBot traders is making some progress towards this goal.   He started with an account size of less than $7,500 in September and grew his account to over $28,000 in less than 2 months, using this very simple 1, 2, 3 money management plan we taught him.  Will he be able to make it all the way to the million dollars a year trading mark?  Only time will tell.  He certainly has had a great start though in his quest towards, Making One Million Dollars a Year Trading!  For a video explanation of this article you can go to, How to Make a Million Dollars a Year Trading:    http://www.screencast.com/t/ZgUS9mVNS6H

Visit Our Website

Our Daily Trading Blog

———————–

IMPORTANT DISCLAIMER: THESE RESULTS ARE BASED ON SIMULATED OR HYPOTHETICAL PERFORMANCE RESULTS THAT HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE THE RESULTS SHOWN IN AN ACTUAL PERFORMANCE RECORD, THESE RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, BECAUSE THESE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THESE RESULTS MAY HAVE UNDER-OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED OR HYPOTHETICAL TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THESE BEING SHOWN.