Thread by @WizOfOps

1/Trade Planning Part 2 - Trade Plans (too alliterative for you? lol)

Reminder, here's the 4 parts of any trade:
edge -> setup -> trade plan -> execution.

If you missed the section on execution, that was yesterday, check out my history. Anyway, here goes:

2/A trade plan is an entrance and exit strategy designed to extract your edge from your setup. The more efficient your trade plan is, the better your returns on your edge are. A trade plan involves tools, using stock, options, futures, etc. These tools need to be used correctly.

3/Before you use a tool, know exactly what it is, practice with it, learn it. I identified options as an important tool due to its convex nature, where equities alone have a more linear nature. Learn your tools before you use them. Do not be Alex Kearns. cnn.com/2020/06/19/bus…

4/ Sidebar: In reality, equity R/R has a positive correlation with its beta, but it never reaches the convexity of options. It is always fairly close to 1, but aren't 1 by themselves because infinity is further away than 0. Anyway, I digress...

5/ Deficiency of trade planning is an epidemic. Many ask me “I have stock X, my returns are +50%, when should I sell?” If a friend, I step through their trade plan and see if their thesis changed since the trade was put on. But they have to tell me their thesis, and many cannot.

6/ The thesis is something like: “I bought Dogecoin because my friend at work told me it would be awesome. I’m up 200%, and I don’t know when to sell”. There’s a lot wrong with that, but focusing on the trade plan piece: there was no exit strategy.

7/ When I ask about the trade plan, halfway through I get a nervous laugh as the trader realizes they tripped into dumb luck. If they aren’t my friend, I say “Sell now and leave me alone” asking nothing. I have already railed on algos and ignorant option traders... my next rant:

8/ There are many sites that promise realtime trade alerts and talk about massive profits. Let us pretend they are not charlatans, since a few are not. You do not know their trade plan! If your plan is to enter and exit when they do, you have a timing issue.

9/From the time you get the alert to executing the order, the stock has moved. That assumes you are sitting by your computer waiting for their alert. The answer is simple: MAKE YOUR OWN PLAN. You can use their alerts, but you need to structure your trade plan to be executionable.

10/ This is why I not only give trades in my newsletter, but I include the trade plan. An example is below. You know exactly what to do.... set a GTC order for 2 verts at $3.20. I try to mitigate that problem.

11/ An excess of planning is paralysis by analysis. I want to buy $AAPL because iPhone sales will 4x, but Airpods could bust, iMacs could crash, services costs could decline but maybe not... in the end you don’t trade, you might as well be in a Money Market and call it a life.