Important Principles in Designing Trade Setups and Plans

I have few general principles when designing setups and trade plans:

  • Strive for simplicity over complexity
  • Positive expectancy with enough opportunities
  • Ensure logic supports the methodology
  • Minimize the number of parameters with adjustable variables – this will reduce the risk of curve fitting
  • Use a combination of initial, breakeven, trailing stops, and time stops when appropriate
  • Favor dynamic stops over fixed dollar stops
  • Be wary of profit targets – they generally reduce profitability
  • Help me avoid fatal mistakes.
  • Achieve better time management – I do not become a slave to the market, continually searching for setups and deciding whether to trade.
  • Emotionally easier to trade – I know whether a setup exists before a market opens. I know where to enter, where to place stops, and where to take profits.
  • The method can be easily validated.
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