Thursday, November 13, 2014

The Best Laid Plans

If you don't design your own life plan, chances are you'll fall into someone else's plan. And guess what they have planned for you? Not much!      Jim Rohn

Many traders will say that they just cannot seem to stick with their trading plan. You may develop a viable trading plan only to abandon it impulsively. Why? What is it that goes wrong? Most often the problem is the plan is to vague, parts are missing and when a plan is incomplete it is very hard to follow and execute. Many newer traders experience additional concerns, the thoughts and emotions that are experienced when the plan is actually executed. The best plans are developed when one is calm and clear-headed, usually long before the plan is to be executed. Strategies are clearly specified, yet when the plan is executed later on, a barrage of emotions may be experienced, and these emotions, if left unchecked, can thwart the best laid plans.

Emotions can color and change our perspective. When you develop a plan during the quit evening it makes perfect logical sense. Then the market opens the next morning and everything suddenly looks different. Perspective's can change very quickly and for many reasons. Perhaps you are preoccupied about other unrelated problems or for some reason you are suddenly worried about money. Your child's tuition is due, or you need a new car, or it's hot and stuffy in your office, or you are just weary and groggy for no apparent reason. It could be that the markets are just behaving more erratically than you had anticipated. Whatever the feelings, or the reasons for them they influence your thoughts and perceptions. What should you do? That varies from trader to trader. Some will stand aside and wait for their mood to improve. Many seasoned traders, who have seen it all and aren't easily fazed, may ignore their feelings and continue on. A newer trader however may be easily shaken. It is at this time that trading errors are made or trading plans abandoned entirely. 

Fortunately there are preventative measures you can take. First and foremost, develop a clearly defined trading plan, knowing exactly when you will enter and what signals indicate that you should exit. Focus all your energy on executing the plan. I know this is easier said than done. When you are emotionally distracted your psychological resources are at their limit and you have few resources left to execute your trade. This is not the time to re-think your plan. Probably the best solution is to limit your attention to executing your trading plan as you have it outlined. Don't second guess it. Think of it as trading as if you were a soldier. When soldiers are ready to fight, they don't question their skills. They don't worry about whether they are unprepared. They are ready to fight an opponent, and need to focus only on winning, and just do it. And that's what you should do just execute your plan under the stressful conditions. There's no reason not to. You factored in the risks up front when you outlined your plan and you know deep down that you can't experience any real harm should the plan fail this time. In many ways, your fate is already determined. if you choke under the pressure, you may mess it all up. If it's a loser, there's nothing you can do. If it was meant to be a winner, however, and you let your emotions fowl up your plan, then you have lost one of the trades that may have been one of the winners across a series of trades. And from a purely statistical vantage point, you want to win on every possibility that you could have. That means executing your plan rather than abandoning it. The best-laid plans can be ruined if you don't execute them properly. But if you clearly define your plan and focus solely on executing it, you'll trade profitably in the long run.

From PrudentTrader Archives 2005

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