Market Mechanics Ep 16: Building a Trading Plan

Ladies and gentlemen, welcome to How to Build a Trading Plan 101. Professor Brad here. And today, that's what I'm gonna be discussing. I'm gonna show you how to build a trading plan and I'm gonna build it with you live. Right, so here's the problem. Most traders not fail because they lack effort. They fail because they do not have a clear, repeatable plan. What I basically mean by that is that they open their charts, they see the candlesticks doing this, and then they start to improvise, they start to enter for a buy, and then they just react emotionally. So price goes up, they enter for a buy, price goes down, they enter for a sell. Big bullish candlestick, they enter for a buy. And to me, that's not trading. That's gambling. The reason why it's gambling is because you don't have any structure built into your trading. So as a result, your results are gonna be chaotic. Just think about it. How can you be surprised when you are inconsistent with your profits, when the way you have been executing your trades is inconsistent? Sometimes you're entering here, sometimes you're entering there. You don't have a structure. You don't have a systematic framework that decides your decision making. All right, so that's what we are talking about in this lesson. And this is a tweet that I've written. If you cannot explain a trade plan simply, you cannot execute it consistently. And if you cannot execute it consistently, you will not get consistent results. Remember, the goal is not to sound smart. The goal is to be consistent. So before I show you how to build a mechanical trading system or a trading plan inside Edgeflow, I wanna talk about the theory behind it. Right, because if you do not understand why a trading plan matters and what it actually is, then building one just becomes a waste of time. Okay, so remember, your trading plan, this is not just a random document. This is the thing that will actually help you make the same quality of decision again and again, regardless of how you feel. Regardless of whether you feel greedy, whether you are feeling the fear or impulse or any sort of other emotion, whatever. My favorite quote, which I repeat all the time during my live trading session is F your emotions. Plan the trade, trade the plan. That is what this lesson is really about. Right, so what actually is a trading plan? A trading plan is simply a set of rules that tells you what kind of market to trade, what conditions needs to be present, where you enter, where you exit, how you manage risk and what trades are not worth taking. That's it. It doesn't need to be complicated, right? It just needs to be simple. It just need to lay out all the rules that you need to follow every single day. In fact, the more complicated it is, the harder it is to follow it under pressure. Just think about it, when you're emotional and then you go on to your trading plan, you realize that there's like 10 pages and it's filled with a lot of jargon and fluff. Now, you won't even feel like going through that trading plan anymore, right? You've just set yourself up for failure when you make it too complicated or too difficult. So yeah, keep things simple. That's just my philosophy. I fundamentally believe that simplicity is the highest form of intellect, all right? That's it. A good trading plan is not supposed to be impressive because it sounds advanced. A good trading plan is impressive because it is clear enough to execute consistently, all right? So here's why most traders struggle. A lot of traders out there, they think that they have a strategy, but what they really have is a loose collection of ideas. They have some concepts in their head, all right? They know all the blocks. They know supply and demand zones. They know chemistry patterns. They know chart patterns. Maybe they have some screenshots that is safe on the phone or maybe like a PDF locked somewhere, things that they kind of look out for. But here's the thing. When the market starts moving live in real-time market condition, speed matters the most, all right? If you don't know exactly what you are looking for, every single move looks like a trade that is worth entering, right? Everything starts falling apart because now you're like, hmm, should I enter here? Should I enter there? Maybe I should stay out. Maybe I should just wait a little bit more. Da, da, da, da. You know, all of this stupid inner voice just start to cloud your judgment. Anything that is not clear becomes emotional when money's on the line. So if you don't have a structured decision-making, you're pretty much telling the market, hey, I'm just gonna donate my hard-earned money to you because when I get emotional, I can't do ----, right? I don't have a trading plan to ground me. I'm just gonna donate my hard-earned money to you. So that's what happens when you don't have a trade plan, all right? As a result, you force entries, you hesitate, you move your stop losses, you cut winners early, you do all of these stupid trading mistakes and just take unnecessary losses. Play stupid games, win stupid prizes. That's it. A weak plan creates emotional execution. A clear plan creates repeatable execution. All right, remember that. If you don't have a trading plan or you have a weak trading plan, what tends to happen is that emotions just have more power over you. It just make it more easier for emotions to take control of your decision-making. So yeah, save yourself some time and money by creating a robust and proven trade plan. Now, remember, our job as traders is to allocate capital wisely. That's right. It's not to make the most amount of money. That's our goal, but that's not our job. Our job is to allocate capital wisely because you only have a finite amount of capital. You only have 100K in your account, 10K in your account, 1,000 bucks in your account, which means that you need to make sure that you're spending it wisely. You need to make sure that you are actually deploying it on the setups that are actually worth taking. All right, this means that your trading plan should decide which trades are worth risking on, which ones are not, when to participate in the market, and when to stay out. Your plan will be able to protect your capital from low-quality decisions. You should be able to know what defines an A-plus setup, what defines a B setup and a C setup, and you only want to make sure that you're deploying your capital on the A-plus setups. So a mechanical system is not about being robotic. It's about removing unnecessary emotion. It tells you what to look for, what must be true, what invalidates the setup, how to manage the trade, and how to review the system. A mechanical plan turns trading from vibes into data. That's the power of a mechanical plan, right? So once again, just understand that you need to have one and you need to keep it simple, right? Because the reason why it needs to be simple is because you need to apply it in real time without confusion. But when there's confusion, when your trading plan is 10-page long, what tends to happen is that, like I said, emotions take over, okay? So the purpose of a mechanical trading system is to remove all the discretion from trading. It's to remove all the unnecessary emotion from trading so that when you're in the heat of the moment, there is no room for guesswork. There is no room for emotion. There is only room for execution according to your trade plan. So what a trading plan does is that it literally gives you the structure, right? So that is what makes it mechanical. It's something that is clearly defined and is measurable and is repeatable and is scalable, okay? So when your trading plan is actually mechanical, what tends to happen is that your execution becomes more consistent, which is a huge thing, right? Because now you're always losing a small amount of money and then when you're winning, you're actually making a large amount of money. Second thing is that your journaling becomes much more honest because now you can actually tell whether a trade followed the plan or not, right? If the trade followed the plan and you make money, great. This just gives you like an ego boost and you also give your trade plan a boost. Now you have data that actually allows you to trust a trading plan, right? Because men lie, women lie, but numbers don't lie, all right? Thirdly is your review process becomes much more useful because now you're no longer reviewing random trades that you're taking on a Friday night. You are actually reviewing a system, right? So when you actually review your trades, you're actually reviewing the effectiveness of the trading system and that gives you the data you need to improve that trading system. So yeah, that's how important it is to have like a mechanical trading system. So, well, before I move on to the next part, which I talk about what should a good trading plan answer, I want you guys to adopt this philosophy, which is called plan first, trade second. A lot of traders do the opposite, right? They open the charts, they trade first, then they try to decide what to do next. You know, maybe I should like get out when price comes here or get out when price comes there. Professional traders do the exact opposite. They decide in advance what they are willing to do and then they just wait for the market to meet those conditions. So that's a huge difference, right? Because one is reactive. The retail trader is reactive. You know, he's just trading for the sake of trading, trading for the sake of adrenaline, trading for the sake of excitement, trading for the sake of making money. But the professional trader is intentional. He knows exactly what he's looking for and he knows exactly when not to trade. He's like a sniper, right? Who is just focused on taking one good trade and the next good trade and then the next good trade. So yeah, plan first, trade second. So that when the ---- hits the fan, at least you're well prepared for it. And trust me, the ---- always hits the fan, right? Always. Yeah. So just don't leave any room for guesswork or emotion. Your plan should tell you exactly what you're waiting for before the market even gets there. If price comes here, I'm gonna buy. If price comes here, I'm gonna enter for sale. And then when price does eventually go there, all you need to do is just execute. You don't sit there and think, hmm, should I do this? Should I do that? Maybe I should do this? No, there is no room for like discretion because you have a mechanical trading system. All right, so here's what a good trade plan should do. A good trade plan should give you the answers to simple questions just like this. What market conditions do I want to be trading? Is it the bullish market condition, bearish market condition? Is it when price is in a continuation phase or a pullback phase? What makes a setup valid? Must I gather my buyers and must I need to ensure that the lower time frame trade ideal is aligned with the higher time frame trade buyers? Must it be located at a specific supply and demand zone or order block? What makes a setup valid and worth taking? What makes it invalid? So if price actually comes down and break past this zone, then I'm not gonna be looking for longs anymore because that pretty much tell me that that demand zone is no longer working, it's no longer effective. How do I manage the trade, right? Where to place your stop loss, where to place your take profit? And most importantly, when should I stay out completely? What are the market conditions that I want to avoid at all costs just like a plague, right? Maybe on Mondays, right? Market condition is not ideal. Maybe doing high impact news, maybe doing holiday seasons, right? So when should I stay out completely? If your trading plan cannot answer these simple questions right here, it is not strong enough. You need to go back to the lab and just make it even stronger. Yeah, so that's trading plan. And okay, here's a common misconception. A lot of traders think that in order for you to become profitable at trading, you just need to be disciplined, right? So discipline means forcing yourself to do hard things. But what they fail to realize is that discipline actually becomes a lot easier when the plan is clear. So when you have a trading plan, you actually don't really need to be super disciplined. You need to be less disciplined, right? Just think about it, right? The definition of discipline is to do the hard things, especially when you don't feel like it. When you don't have a trading plan, you have no choice but to try to use your willpower, to try to be disciplined in the heat of the moment, to try to control yourself. But when you have a trading plan, you have a structure. Now, you are not negotiating with yourself. You're not asking, should I take this trade? Maybe this is close enough. What if I just try this one? You already know where you are entering for the trade. As a result, you already have the structure. You already have an idea. You don't really need to rely too much on your willpower. All you need to do is just execute. That is the beauty of a mechanical trading system, right? It allows you to just not negotiate with the inner bitch. And less negotiation means less emotional damage, means less losses, as simple as that. With that being said, let's move on to the next part, which I'm gonna show you how to build a mechanical trading system live in EdgeFlow. This app is called EdgeFlow for a reason, because it helps your edge flow into execution. EdgeFlow literally stands for edge plus flow. And your edge, in this case, is your trading plan. Your flow is how you execute it on a day-to-day basis. And the thing is, most traders, they have an edge in their head or in a PDF, but it doesn't translate into consistent actions, because sometimes they forget to look at it. They forget to review it. They don't feel like reviewing it. But with EdgeFlow, EdgeFlow turns it into a workflow that you can follow every single day. Okay, like this app is built in a way where it connects the whole loop. Plan your trade, prepare for the session itself, execute the trade, journal your trade, review the trade, so your edge doesn't break when emotions hit. Now, the reason why I believe having a trading plan is so important is because I believe that a trader's job is to allocate resources wisely. Since we only have a finite amount of capital in our account, we only have a limited amount of money, so we want to make sure that every single trade that we take is a high-quality setup, and that's where your trading plan comes in. Your trading plan decides what trades are worth taking and what trades are not worth taking. Let me show you how I build my mechanical trading system inside Edge. So, like I said, Edge is just like a simple trade plan builder. All you have to do is to come in here, create a plan, just like this, and you just fill up all the necessary fields in here. And you start off by naming the plan. And if you don't know where to start, feel free to use the presets that we have right here. These are proven templates, proven trading systems for my coaches inside my mentorship program, the 1% Club, with over 20 years of combined trading experience, right? So we can verify that these trading strategies, these trading plans actually work. But yeah, if you want, if you don't know where to start, you can check out these templates right here, but just know that they are simply a starting point, right? You still have to customize it so that it suits your trading style, it suits your trading personality. You adjust it to fit your risk tolerance, okay? But anyways, let's just try to build a plan live right now. Okay, so first things first, put a name right here. Let's call it Market Mechanics Plan, right? This is where you can give a name to the setup in which you are trading within this plan itself, right? So maybe I like to call it the Liquidity Sweep Entry Model. All right, and then this is where you want to add your charting process. So this, to me, is the most important part of building a trading plan, is to determine the buyers, right, is to identify what's the trend direction, is to map out our point of interest, is to determine what is the location in which we want to enter the trades from, right? So that's where charting process come into play. It's how you turn a blank chart into a system so you know exactly where to buy, where to sell. That's it, right, that's the charting process. All right, so this is where I'll put literally my top-down process, what I do on the higher time frame, what I do on the medium time frame, what I do on the lower time frame. So just to give you a quick little example, you can see this one right here on this A plus setup checklist. These are the steps that I have in my charting process, right, if you know how I trade, you will understand all of these terminologies. If you don't, you might want to consider checking out my YouTube. But yeah, like this is just the entire charting process, which I take every single time I come onto a blank chart, right, I know that, okay, these are the things that I need to do in order for me to make sense of the market in order for me to just build a narrative on the market. Okay, so yeah, the goal of this charting process is for you to just turn a blank chart into something you can work with so that you can develop a trade bias, all right? That's it. And then this next section, this is where you can put your entry criteria, all right? So let's say my charting process allows me to mark up this beautiful supply and demand zone. Okay, now price has finally dropped into the supply and demand zone, and now I want to enter for the trade. But then what's the confirmation? What's the entry triggers that I need to see appear in the market before I enter for the trade? Well, that's my entry criteria, right? So this is where I'll put down the things that I want to look out for, right? The confirmation, the non-negotiables that must be true before I even think about pressing the buy and sell button. And if every or any of these criteria is not met, I would just not trade, right? Like that's it. If even just one of these boxes are not being checked, I would still not trade, right? That's how important the entry criteria is to me. I want to make sure that when I see a setup, it needs to checks off every box within the entry criteria itself. Yeah, and then below here, this is where I also paste some screenshot of my entry models, right? Just for me to remind myself, okay, this is the setup that I'm looking for when I come onto a blank chart. And this is an example of the setup itself. Yeah, so you can paste some screenshots. You can take it as reference points when you are trading. And then below here, this is where you have your trade management rules, right? So once again, this is something that you can type. You can literally type like how you would manage the trade once you are in the position itself, right? Whether you are going for a set and forget method, whether you are trading your stop loss, whether you are taking partial profits. If you are trading a stop loss, how will you be trading a stop loss? If you are taking partial profits, are you going to be taking partial profit at 50% or like 100% or whatever? You need to define the terms in which you want to be managing the trade itself right here. And then once that's done, this is where you put your exit criteria, right? Which is very, very simple. There's only two sort of exit criteria, to be honest with you. Number one is where do you want to exit if the trade ideal does not go as planned, right? So like where do you want to get out if you are wrong? So this is where you decide where to place your stop loss, right? Maybe I want to place my stop loss at the low or high of the liquidation candle or below my support level or above my resistance level, whatever it is, right? And then another scenario that you need to take into account of is where would I get out if my trade play out in the way I envision it to play out, right? Like if price actually goes in my desired direction, where do I want to get out of if I'm right? Okay, so this is where perhaps I might say I want to take profit at the next swing high or the next swing low, right? Just like this, right? This is how you put your exit criteria on paper. So now you know exactly where you want to get out when price goes wrong, when things go wrong and things go right, okay? Remember, amateurs focus on entries, professionals obsess over exits, right? So make sure you have a very clear idea on exactly where you want to get out of the trade at all times before you even enter the trade. And then below here, this is where you can put some trading notes as well. For me personally, I like to put some reminders. I like to put some philosophies. I like to put some quotes in here. And you can also put common mistakes. You can even put market conditions that you want to avoid, right? So these are kind of like the rules that you want to follow to protect you from yourself, right? To protect you from emotions, right? So to me, this is just like reminder to myself, okay? Yeah, so you can just put whatever you want in here. This is fully optional. And bam, there you have it. Now, on the right-hand side right here, if you notice on your trade plan, you will see your guardrails in here. So you don't have the ability to change your guardrails in Edge itself. If you do want to modify your guardrails, just press this button right here. And this is like the modify guardrails button. And it will direct you to settings, right? Where you can change your guardrails in here. And whatever guardrails you apply here, it's universal across every single trade plan, right? You can see every single trade plan has the same exact guardrails, right? So if you want to change your guardrails, you can just press this button right here and you will get directed to the settings. Next up is once you save the trading plan, it becomes read-only, right? You can see I can no longer edit the trade plan. I can check off the boxes right here, right here. Very, very nice. But I can no longer edit the trade plan. And this is useful, right? Because when you are trading, okay, we have this banner that pops up every single day to remind you to actually review your trade plan. And this is also part of your pre-market routine as well if you actually set it as that. So what happens is that when you press open trade plan, you can see, this is what you will see, right? You will be able to review your entire trade plan that you have set as active inside Edge. And once you have reviewed the trade plan, you have went through the charting process, the entry criteria, you can just press markets review and the banner will disappear itself. And also when you're trading, if you go to trade plan right here, you can also trade with your trade plan right next to you as well. If you want more guidance, more structure, more support, right? You can analyze the charts while you're doing this mapping process. You can look for your entry models while you are looking at the reference right here. So that's Edge, okay? And yeah, that's what happens when you actually set a plan as active. When you set a plan as active, you get pinned on the top and it's literally everywhere, right? On your trading platform, it appears here, right? In a pre-market routine, it also appears here. It becomes your default trading plan, all right? That's how the active thing works. That's how you actually activate a plan. And also, when you take a trade, right? Let's say you take a new trade and you close the position and you go on to journal, it will automatically tag that trade as the trade plan that you have on active, right? So in that case, you saw that my active trade plan was the A-plus setup checklist. And if I come on to this trade right here, you can see, by default, it always tag it to the active trade plan. Yeah, and then you can come into journal, you can select whether you did or did not follow your trade plan or not. And then based on this, right, it will create your plan stats, right? So if you go back to the edge itself, you can see this is your trading data. This is the statistics that we have compiled based on the trades that are tagged to this trading plan in the trading journal, all right? So like what I've showcased to you earlier on, on your trading journal itself, you have the ability to go to individual trades and just tag it to the trade plan that you follow, right? And check off whether you follow the trading plan or not. And then when you do this, right, when you take multiple trades, what happens is that when you go back to edge, we are able to show you how effective the trade plan actually is, right? Based on how many trades you have taken, what is your win rate while you're using this trading plan, what is your P&L, right? How much money you made or lose while you're trading with this trade plan, and what is your compliance, which is, did you actually follow your trading plan or not? Right, because just now, as you recall, when you go on the trading journal, you have this checkbox where you can tick, I follow my trade plan. So if you didn't, it will reflect here. If you did, it will also reflect in this compliance score right here, yeah. So this is simply the percentage of trades where the required checklist steps were followed. So this requires you to be brutally honest so that you can actually see how each one of your trade plan performs. And when you do this, this allows you to make data-driven decisions instead of decisions based on vibe, instead of saying stuff like, oh, today, this trade plan didn't work, so I'm just gonna switch to this other trade plan. Oh, my trading guru is trading this plan, so I'm just gonna switch to another plan. No, now you can actually make data-driven decisions, right? But like I said, it requires you to be honest with your trading journal, right? You wanna make sure that you don't lie to anybody, right? Because nobody here is gonna be looking at your trading data other than yourself. Be brutally honest, grade your trades based on the trading plan, and this is where you will be able to really just see which are the trading plan that tends to perform well, which one is just not that effective, and then you can just double down on the plan that actually works. So yeah, that's it. As simple as that, right? That's the entire Edge system. That's how you build a trading plan inside Edgeflow, and that's how you actually just integrate the trading plan into your entire trading system so discipline becomes automatic. So I just wanna say, just gonna end off with a final piece of advice. When you are creating a trading plan and you start following your trading plan, as time passes, you want to adapt, okay? You don't just want to follow your trade plan blindly. You should treat your trading plan as a living, breathing organism rather than a scripture because as the markets evolve, market conditions change, which also means that this trading plan will not be as effective five years from now compared to today, right? So as the markets evolve, you want to tweak it. You want to test it. You want to adapt it because if you follow the same plan for 50 years without changing anything, then you are not trading the plan. The plan is trading you, right? So make sure you evolve your trade plan as time passes and slowly but surely just continue, seek to improve this trading plan and then as time passes, this trading plan will just get better and better, more and more bulletproof and you will start to see your trading results compound as well.