2006issue C011-5
A complete trading plan from philosophy to checklist
A trading plan holds together when philosophy and psychology are locked first, so later checklist rules for entry, exit, and sitting out cannot contradict one another.
- An incomplete plan commonly omits the market inefficiency being exploited, the links among method, timeframe, and tools, and a low-risk path through the learning curve.
- Philosophy chooses between intrinsic value and perceived value, and between following trends and hunting reversals, because those choices dictate later setups and indicators.
- A checklist-process fires only when philosophy, setup, filters, and execution constraints all line up, with stops at invalidation and exits in the same framework as entries.
- One historical example uses a one-to-15-day horizon, a loss cap of 1,000 dollars or 1.5 percent of capital, a volume floor, a head-and-shoulders neckline entry, and a five-loss halt before paper trades.
The plan as one procedure
The archive presents a trading-systems-decision-process as the full sequence that turns market view, personality, and risk limits into aligned entry, exit, and abstention rules. A complete plan starts with general choices and then details, so actions, objectives, risk tolerance, circumstances, and personality stay aligned.
An incomplete plan commonly omits the market inefficiency being exploited, logical links among method, timeframe, and tools, and a low-risk path through the learning curve.
Philosophy first
Philosophy forces a choice between intrinsic value and perceived value, and between following trends and hunting reversals, because those choices dictate later setups and indicators.
Psychology as explicit rules
Psychology work includes recognizing public emotion on the chart, suppressing personal impulses, and using practical methods to keep a usable state of mind. Those steps form a trading-psychology-process: the explicit rules that keep emotional state from rewriting the system mid-trade.
Checklist rules for entry, exit, and sitting out
A checklist-process is a pre-trade procedure that only fires when philosophy, setup, filters, and execution constraints all line up.
System design must keep timeframe, formations, and indicators aligned. Continuation patterns such as cup-and-handle belong with trend following, double bottoms with reversals, and range setups with range trading.
Stops belong where the setup is invalidated. On a double bottom that placement is just under support, because a break there means the support assumption failed. Exits should be defined inside the same framework as entries, for example leaving a reversal that used a stochastic below 20 when the reading is above 80.
Tool choice follows style. Traditional brokerage and delayed charts fit long-horizon fundamental work. Online or direct-access brokerage and real-time charts fit swing or day trading.
A worked example
One worked example uses a one-to-15-day horizon, five to seven concurrent positions, no margin, a loss cap of 1,000 dollars or 1.5 percent of capital including commissions, and a five-million-share daily volume floor.
That same example treats head-and-shoulders as an aggressive entry when the neckline is touched with rising volume. Head-and-shoulders is a reversal chart structure whose neckline and volume condition become a falsifiable entry and stop hypothesis. Five consecutive losses are a halt that is followed by two days off and five paper trades before returning.
All readings on this track · 37 readings
- 1982Head and shoulders as a three-path completion test
- 1984Stock low clusters as a cycle baseline
- 1985Four-phase construction of the head-and-shoulders reversal
- 1989Volume-confirmed reversal patterns, stops, and measured objectives
- 1991The journal as one checklist for taken and skipped trades
- 1991Head and shoulders as a direction hypothesis
- 1991Candlestick body and shadow construction with three-Buddha peaks
- 1992A three-count drill that binds candlesticks, head and shoulders, and entry rules
- 1997Constructing bump and run reversal channels
- 1998Testing reversal formations in bond futures
- 1999Construction first: extra shoulders, the neckline, and the diamond test
- 1999Dead-cat bounce, rollover, and failed reversals
- 1999Evaluating time gaps in bond reversal patterns
- 2000Constructing head and shoulders and double reversal patterns
- 2001Constructing broadening and complex bottoms
- 2001Constructing a slanted head-and-shoulders when the chart is tilted
- 2002Head and shoulders with dominant-cycle timing
- 2002Trendline breaks, right shoulders, and trailing stops
- 2003Confirmation tests for bearish top patterns
- 2003Commodity top hypotheses on a dollar rebound
- 2003A head-and-shoulders test during a bear rally
- 2004Pattern breakouts need a primary-trend filter
- 2004Reading candlestick closes on trendline and neckline tests
- 2004Candle diagnosis needs Western targets and stops
- 2004Head-and-shoulders neckline construction
- 2005A familiar chart condition is a hypothesis, not a completed decision
- 2005A 50-day ceiling and a rising-floor stalemate
- 2006A complete trading plan from philosophy to checklist
- 2006Thin-market head and shoulders with two averages and MACD confirmation
- 2010Head and shoulders as a playback-tested setup
- 2011Turning a head-and-shoulders outline into a breakout hypothesis
- 2011Volume-confirmed head and shoulders on AIG and Citigroup in 2007
- 2013Constructing head-and-shoulders milestone points
- 2013Head-and-shoulders geometry versus the filter stack
- 2013Algorithmic head-and-shoulders construction
- 2018International relative strength as a double-top case study
- 2019Structure invalidation before comfort-stops