For some people, operating under chaos is how they're used to operating. These individuals may be able to manage the simultaneous chaos of the market and find setups. But even this type of individual would benefit from organization. There are too many tools available that can improve your efficiency and too many options out there for individuals to be able to optimize them all. This is where a trading plan can be structured to be more efficient.
Even having software that helps you with one particular process such as watchlist development or entrypoint isn't necessarily enough to tell you position size, asset management, decisions on how many to enter and which ones and how to prioritize entries, how aggressive to be given the conditions and so on.
A full trading plan has to quickly sort through the mess of multiple variables and manage the chaos. Many make the mistake of confusing chaos with randomness. The market is chaotic which means many properties such as distribution of outcomes and day to day predictability of moves may seem random, while operating with an order under the surface.
Mohnish Pabrai has been using checklists to accomplish this task. It is the same process that airlines have implemented to reduce error and many medical arenas are now adapting to avoid mistakes.
Checklists should at least be designed with the most fatal mistakes in mind and make sure there aren't too many decisions on the checklist.
Develop the habit of reading through a checklist.
Make the checklist when you are out of the market or at least on a weekend when the market is closed so you can maintain some objectivity.
Backtest and forward test and/or model certain conditions and decisions to see if your assumptions about your decision make sense prior to implementing it into a working checklist. A checklist should have no more than 11 items and probably closer to 5-7.
Example checklist:
1)Check to make sure portfolio tracking data is updated
2)Check to see if any thresholds have been met that require action such as reducing size or limiting buying.
3)Check to see if your portfolio rules allow for the addition of stock and/or option purchases
4)If so, use breadth tracking and/or other methods like oscilators and indicators to determine if market is in a condition where taking the action is acceptable.
5)Check watchlist and risk/reward of potential entries and ensure they follow your purchase rules before purchasing.
6)Look for entry trigger.
7)If portfolio rules and market conditions and entry triggers permit, buy.
8)Track portfolio end of day just before close (5-15m before close) and sell anything below stop or beyond target that meets exit criteria.
9)Update watchlist after close consistently (perhaps once a week, twice a week or once per day).
10)Input watchlist data of possible stops and entries.
11)Update alerts for prices below stop or above target and also for any prices that may trigger a trade.
Optional:Update portfolio tracking data after close or after next open?
Condense this to:
1)Update and check portfolio tracking.
2)Check breadth and portfolio tracker to determine if you are possibly (or definitely) buying or selling today.
3)Check watchlist for possible entry, confirm with trigger.
4)Review positions before close.
5)Update watchlist, watchlist data and alerts
You may wish to set an alert or alarm to inform you when it's time for this. You might have a phone alarm and where it says "location" or "title" you can put the details for what that time of day signals. Example:
Alarm 9:35: portfolio tracking - determine today's possible actions. Update portfolio data
Alarm 10:35: check breadth and determine if buying or selling today.
Alarm 11:35, 12:35, 1:35: breadth + portfolio + watchlist
Alarm 2:35 Final period to consider buying
Alarm 3:50 Check portfolio tracking and look for trade exits.
Alarm 3:59 Market close, update watchlist.
Alarm 4:15 Update watchlist stop and targets in spreadsheet
Alarm 4:45 Update Portfolio data
Alarm 5:00 Update email alerts for trade triggers
Another way to organize it is perhaps that within each checklist you might have more details available as a reference if you need them, or you might try a checklist of checklists. Your first checklist tells you which order to view the checklists and how to use them to come to a decision. Your second goes through the steps of what specifically to do rather than generally and provides more details to avoid any mistakes within that particular process itself and gets you used to not trying to make any decision that isn't allowed by the process. This is a more in depth way to go about it but it keeps you organized to a particular procedure.
Checklist of Checklist example:
1)Portfolio tracking checklist
2)Breadth tracking checklist
3)Watchlist development checklist
4)Monitoring Watchlists for entries checklist
5)Entry checklist + Position size checklist
6)Management/exit checklist
7)Trade review checklist
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1)I like updating portfolio and determining the plan for the day at the open (adding any trades from yesterday and updating the prices to set the tone for the rest of the day. I have no interest in trading the first hour or two after the open anyways so any time in the first two hours to do this is fine)
2)I like managing trades/exiting right before market close on an exit signal.
3)I like setting up a watchlist after the close and setting the targets and the stops if I were to take the trade after the close... or on the weekend
4)I like setting alerts just after that. Alerts let me know when trades I really want hit points where I'd consider an entry or when certain candlestick trades are triggered that I use when opportunity is scarce or when I'm trying to place a bearish trade.
5)After the first hour or longer of trading I like checking breadth throughout the day and I check that just before I look at my watchlist.
Setting a phone alarm with a note to go off Monday through Friday is a good system even as just a reminder. You may want to treat one or two days of the week differently and have different alarms.
Set it to go off once sometime during the open.
Have it go off once 5 or 10 or 15 minutes before the close depending on what you need
Set it to off after the first hour or two to go off once every hour and once every 15 or 30 minutes on Fridays (options expiry).
As you spot nuances you'd like to include, try to adapt your checklist to reflect those changes but make sure you don't get carried away. For example, perhaps you want to check the RSI(5) on the sector SPDR ETFs and check the breadth by sector and by some of the largest industry groups to determine where to focus your buy priorities or watchlist priority names. As you're building a watchlist rather than just being about risk/reward you probably want to highlight a few of the most quality names or those within themes and place emphasis on those
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