Diary of a Professional Commodity Trader. Peter L. Brant (II)

Today I'm going to detail the factors of his trading plan.

Preliminary Components:

Personality & temperament. He doesn't recommend commodity markets for day traders, "balance checkers" and people emotionally unfit. A trader for him requires two things: financial ability to experience prolonged periods of unprofitable trading and ability to manage emotions.

Adequate capitalization.  It has to be related to the terms of the risks taken. The maximum asset risked has to be less than 1% of total assets. So you need a good account to buy some futures. However today there are a lot of mini-futures and a lot of ETF. So you can find something that will fit you.

Overall risk management. Nowadays he limits his risk in any given trade event to 0,6 to 0,8% of his trading assets. He explains that when he was young he was more leveraged.

Trading Components:

Trade identification. He uses the charts patterns. He looks for breakouts (sometimes the goods ones are the secondary breakouts or pattern recompletions.)  He prefers horizontal versus diagonal patterns because the penetration of a line occurs simultaneously with the violation of a high or low point within the pattern.

Four categories of Trades:

-         Major patterns (10-12 weeks in duration at least with corresponding daily chart patterns of the same configuration). It can be anticipatory, pattern completion position or pyramid position.

-         Minor patterns. (4-10 weeks in duration al least). It can be continuation patterns or reversal patterns.

-         Instinct trades.

-         Miscellaneous trades. Short-term momentum operation but inside an existing trend.

Target or objective. Usually he think that markets tend to advance or decline in legs that are approximately equal distance. But sometimes takes some profits before touch the target. It's one of his (and mine!) most challenging factors to improve.

Trade entry.  You must read the examples of the book to understand his thinking and method.

Trade risk management

Last day Rule. Putting the stop in the low of an upside breakout day or the high of a downside breakout day.

Retest Failure Rule. A hard retest of a pattern makes him adjust his stop using the high or low of the hard retest as a new protective stop point.

Trailing Stop Rule. Consist in moving the stop as the price is making higher lows o lower highs.

Trade order management. There are several conditions he uses to exit a trade.

At a loss: usually because price penetrates his stop.

At a profit. At the target, at a trailing stops, when he sees a possible reversal of the trend.

Personal Components:

Intangibles.

Intimate knowledge of trading signals. If there is an operation for you, you are able to detect it fast.

Discipline and patience to execute trade signals consistently and correctly.

Feedback Loop. Includes analysis and trading plan modifications.

One thing is earning money and another doing trades that fits your trading plan.

First you may ask yourself if your trading plan was in sync with the markets.

Then ask if your actual trading was in sync with trading plan. (quantitative and qualitative questions…)

Leap of Faith

Self-doubt (or fear) and second-guessing are the two major killers of a sound trading plan.