1. Every trader needs a plan.
If you do not have plan it is hard to make money because you are always doing random things for random reasons, there is no constant and every experiment needs a constant. (TraderHabits)
2. The plan should be as simple as possible.
I think people who use these indicators are looking for some “magical signal” to get in and out of a stock. Sorry for the breaking news but: MAGICAL INDICATORS DO NOT EXIST. All you need to know is if the stock is being accumulated (and in an uptrend) or being sold (and in a downtrend). Learning how to read price and volume can tell you this. In other words, the indicators are simply a crutch and you don’t need them. (Joe Fahmy)
3. The plan should include a trade checklist.
The question is, can a trader execute a useful checklist in the time an edge remains open? In my old mental model, I’d say no…too many steps cuts into the offensive mindset we need when entering a trade. In the model described by Gawande*, I think the answer is yes. As the surgeon says “Checklists provide a kind of cognitive net. They catch mental flaws inherent in all of us, flaws of memory and attention and thoroughness.” (Derek Hernquist)
Trading is a business. Trading without a plan is like starting a business without a business plan. A trading plan need not be complicated, in fact the best plans are as simple as possible without omitting important steps. As it stands most traders fail, plan or not. Why wouldn’t you try to put the odds in your favor?
Update: Darren Miller at Attitrade pointed out a old post of his on trading as a business.
*Atul Gawande, The Checklist Manifesto: How to Get Things Right (Amazon affiliate)