My Trade Diary

by Mark Cook, featured in the Market Wizard series

If you decide to trade for a living, you have to treat it just like any other business endeavor and go into it with a plan. If you want to start a business, and all you do is walk into a bank, smile pleasantly, and ask for a $200,000 loan, do you think you'll get it? Are they going to say, "You have a really nice smile; here's the money." I don't think so. You need
to have a solid business plan. The trouble is that most people start trading without any definitive plan.

It should contain specific answers to all of the following questions:

1)What markets are you going to trade? You need to select a market that fits your personality because a market is reflection of the people who trade it.

2)What is your trading capitalization? On the one hand, you should honestly be able to say, "If I lose all this money, won't change my lifestyle." On the other hand, you need a large enough account so that making at least as much as you do from your current job is a feasible goal. Otherwise, you will think that you are a failure because you will work harder as a trader than you do at the job you are in now.

3)How will orders be entered? Will you scale into positions or put them on all at once? How will you exit losing trades? How will you exit winning trades?What type of drawdown will cause you to stop trading and reevaluate your approach? What type of drawdown will cause you to shut down trading?

4)What procedure will you use for analyzing your trades?

5)What will you do if personal problems arise that could adversely impact your trading?

6)How will you set up your working environment so that it is conducive to trading and maximizes your chances for success?

7)How will you reward yourself for successful trading? Will you take a special vacation, buy yourself a new car, etcetera?

8)How will you continue to improve yourself as a trader? What books will you read? What new research projects will you do?