Without doubt, no trader will last long if he doesn’t plan every trade. But there is absolutely no point in making a plan for a trade if you are not disciplined enough to follow it.
A plan should cater for every eventuality. As Richard Dennis (Turtles fame) said, “Don’t worry about where the prices are going. Worry about what you are going to do when they get there.”
Think about what is being said here. Once you put your money down on a trade you cannot control the prices. So stop worrying about what could happen and concentrate on your trigger points and what you will do when these points are violated. By doing this, your trading stops being emotional and now becomes very systematic and stress free.
Look at this example:
Let’s say you buy a S&P E-Mini Contract at the price at 1500. You have a 3 point stop loss and according to the Delta statistics chart, your best trade is to hold for 4 points.
Now, let’s say the S&P goes up 3 points and hits a slow consolidation range. What should you be asking yourself?
- I’m getting edgy, should I sell and take the 3-point profit?
- What time is it?
- Are there other indicators that say to close my position and sell?
- Do I have a golf game in 30 minutes?
The answers to these questions depend on your trading rules.
You should NOT Sell just because you are getting nervous. If the Delta Trading statistics say a 4-point trade is the profitable trade, then wait it out. You will either gain 4 points, or lose 3. Let your rules guide that trade, and not your emotions. Now, if there are other confluent factors that support a trade exit, then exit the trade. For example, perhaps it’s now 45 minutes until the close of market. It’s obvious you don’t want to get stuck in a day trade at the end of the day. Perhaps, you get a strong trend in the opposite direction and a new trade signal in the opposite direction. I these cases, you are exiting according to rules.
In having a trading plan, everything becomes automatic. You know where to get in, place stops, and exit. In short, you are now trading professionally and not from emotion.
Not once did you have to ask for opinion. Not once were you afraid of letting a profit get away, or of a loss becoming too big. Simply put, if you make a plan and have the discipline to follow it trading becomes very simple and stress free.
In my many years of business, school, and trading, one point I try to get across to other would be traders is the market will always do its utmost to throw you off track. Once in a trade it’s a little like riding a wild horse. The prices will thrash around violently shaking off all scared and emotional traders. It will only be the ones who have the discipline to follow a set plan that will benefit from the full move.
Planning a trade should be no different from planning a journey.
You must plan for all kinds of events. Especially the unforeseen ones. Most of the time a trade will go your way and the plan will barely have to be looked at but what if the price gaps, goes sideways, or crashes? If you aren’t prepared for these surprises then when one does happen you are going to find yourself wandering what to do. And once you are trading from the “hip” and not from a plan then expect your results to worsen.
Having a plan totally removes all opinion and emotion from a trade and anything which does this can only be good news. Time and time again at seminars and meetings I hear the same question:
“I seems easy to get into a winning trade, but knowing when to get out is hard. I either leave money on the table or I stay in too long and lose my winnings.”
This is where sticking to your strategy is of great importance. With my group, Delta Trading, we concentrate of trading outside of the greed factor. We have our exit strategies in place before we even make the trade, and we stick to it, no matter what happens. Second guessing your trade puts you in last place every time.
I can guarantee before Warren Buffet, or George Soros buys $50,000,000 worth of stocks they know exactly what they will do if prices swing one way or another. Could you imagine Warren Buffet thinking, ” gee, I bought $20,000,000 worth of DFG stock and it’s down by 15%, what shall I do?” No way! And why should it be any different for your trading? The point is it doesn’t matter whether you are trading with a $5,000 account or a $50,000,000 the principles are the same. You must eliminate all emotion and follow YOUR plan.
To be a winner in the markets you can never trade from emotion, and the only way to eliminate emotion is to have the iron discipline to follow your own plan. It’s said most traders never plan a trade never mind have the discipline to follow one. If you want to become one of the few market winners you must
“Plan every trade and trade every plan”