Friday, September 12, 2014

Sticking To Your Plan

Every fighter has to go in there with a game plan. 
Rau'Shee Warren

New traders often say they have difficulty sticking with their trading plan. There are many possible reasons. A common issue is not having a clearly defined plan. When a trading plan is not clearly defined, it becomes hard to follow, easy to abandon. You may be prone to over-thinking your plan or you may become easily consumed with self-doubt. When you clearly define a plan, in contrast, you can implement it more automatically. You can enter and exit more effortlessly. Many traders say, however, that even when they painstakingly outline a trading plan, they still have difficulty following it. This may have much more to do with your personality, than your particular plan.

People who are disciplined in everyday life, ironically, tend to have the most trouble sticking with trading plans. Disciplined people are rule followers, and research studies have shown that rule followers prefer certainty. Anyone who has traded the markets for a few months soon realizes that the markets are not certain, and conventional wisdom is not consistently valid. Oddly enough, people who are impulsive in everyday life have less difficulty following a trading plan. They view trading the markets as a "game", they enjoy the risk. They have a natural, carefree attitude when it comes to trading as with the rest of life. They can easily think, "Why not follow a plan? It doesn't matter if it goes awry."

Most traders have trouble approaching trading with a carefree attitude. As an example, you see the price rise initially then it stalls before reaching your objective. You begin to think, "How much longer can it go up? I can't wait. I've got to sell and lock in my profits right now." You start thinking, "Don't be greedy can it be a bad thing to get out early and get a profit?" Now it becomes extremely difficult stay. All of a sudden you have abandoned your plan when economic success depends upon your staying the course. It's simple mathematics. Although there may be several profitable trade setups out there, finding a really good one is
relatively rare. You'll see many more setups that don't pan out than actually do. When you hit upon one, you must capitalize on it, and maximize your profits, getting as much out of the trade as possible.

If you are a natural born risk taker, sticking with your plan is less difficult. Risk takers get a rush from the trade and can't wait to see what happens. The psychological rush is more enjoyable, in some ways, than the outcome. But most of us are naturally worried about the outcome and a little cautious voice nags us to get out of a trade before it comes to fruition.

How do you quiet this voice of caution? Not easily that's for sure. I think the best thing you can do is to manage risk. If the outcome of the trade truly doesn't matter, then you won't worry as much and can stick with your trading plan. Winning traders view trading as a game, they think, "I'm just trading for fun." They look at a trade and think, I want to see if it reaches my objective or not. They are a student of the markets. The learning experience is more important than the outcome. Winning traders are not only players of the game, but observers. If you can cultivate such an attitude, you'll be able to follow your trading plan, and silence the voice of self-doubt that often thwarts your trading efforts.

Reprint from Prudent Trader Archives 2005

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