Developing a Trading Plan for the New Year

With 2015 now upon us, many traders find themselves in the position of poring over their trades and balance sheets from the last twelve months. As the US equity markets approach year five of what is now being accepted by some as a secular bull market, many traders ask the age-old question “where do the markets go from here and how do I position myself accordingly?”

Even with all of the geopolitical uncertainty and the volatility it brings, good trading and investing is still rooted in developing a firm set of processes, a clear plan and a set of contingencies if the market fails to develop in the way you expect; more simply put, what is your plan B?

Review, Reflect and Revise

To build a game plan for the New Year, start by understanding the strengths and weaknesses of your trading strategy. A truly honest and unbiased account of where your trading performance stands usually begins with good record keeping. For that reason, starting and consistently using a trading journal should be high on a traders list of priorities. Personal blogs are very effective for this purpose as they can be made private; charts can be included with notes and commentary and they can be accessed from anywhere. It is important to remember that when you are trading well, you want to document the things that are contributing to our success. When your trading is not where we want it to be, you need to understand what is broken in order to fix it.

Many trading applications that execute trades and manage orders have account settings that provide traders feedback about their performance in detailed form. By developing personal metrics around your trading, you can focus more effort on the types of trades where you experience the highest level of success.

Goal Setting

Goals need to be attainable. When it comes to setting goals for our trading, it is important to keep in mind not only the big picture via long-term goals but weekly and monthly ones as well. While goal setting is a healthy part of building a successful trading business, it is critical to not make the goals so lofty that they are statistically unreachable. Goals that are beyond our statistical reach can hover like storm clouds even in the face of profitable trades. If you find yourself consistently missing the self imposed goal line while your trading account continues to grow, then it may be time to re-evaluate what you are trying to accomplish.

Learn Something New

Traders and investors should always be evolving. The dynamic nature of the financial markets dictates that you should always be learning and understanding the changes that are going on around you. Like many other professional occupations such as physicians or attorneys, traders and investors should spend a portion of their time on continuing education. Books, articles, videos and trading groups are areas that can help expose you to new ideas, markets and strategies.  The benefits of discovering a new insight or refining an approach to the markets can pay extraordinary dividends. As active traders and investors, we are essentially small business owners. As with any business, you want to look for ways and techniques that generate higher profits while making your operation more efficient.

Remember the Cycles

While preparing our trading for the New Year, it is important to remember that the market leaders of 2014 are unlikely to be the same for the upcoming year. The rotation of sectors and the replacement of highflying stocks with new companies is a natural change. This rotation is not limited to individual stocks but broad industry groups and larger portions of the economy. When developing your trading plan for 2015, it is important to take this shift into account so that new ideas are thoroughly explored and not judged solely on their prior year’s performance. For investors looking to dedicate funds to other areas of the market, ETF’s or Exchange Traded Funds are a powerful vehicle to take advantage of. The “January Effect” where small cap stocks may outperform large cap counterparts is another component to the seasonal cycle. Whether the shift is toward commodities or away from bonds, the flow of capital should be a primary consideration for any agile trader.

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