STICK TO THE PLAN: PREPARATION, DISCIPLINE AND FOCUS
This blog is designed to help new traders and those who have yet to become profitable understand what it takes to become consistently profitable.
Becoming a consistently profitable trader is NOT easy, but it IS worth it. And it DOES exist.
In my last blog post I talked about the importance of making strategies your own. This is really the only way you can start to move forward instead of sideways.
It’s how you stop hopping from strategy to strategy and start focusing on the ones that have stuck around and shown promise because once you understand these strategies on a deeper level you build the necessary faith to stick with them and to STAY IN THE GAME.
When you customize strategies they start to become the way YOU see the markets. They cease to be someone else’s viewpoint or marketing tool and start to become the means by which you make money in the markets. This is an important step toward consistently profitable trading.
A key part of this customization process is the development of profitable trade plans. This is the PREPARATION needed to establish your actionable edge in the markets, especially through changing market environments.
This is crucial because without the trade plan the strategy is just an idea, a concept. It’s like having the ingredients for a delicious cake without a recipe to follow and the instruments to actually mix it up, bake it and eat it.
The trade plan determines where you’re going to enter and when, with how much risk, when you’re going to exit, how much money you want to make and how much you’re willing to lose as well as how you’re going to manage the trade and attempt to keep it viable through unexpected price movements, unfavorable conditions or a sudden environmental change.
Trades can last anywhere from minutes to months so your plan has to take your time frame into account. Are you going to add size or shares/contracts at a certain point? Are you going to cut size at a certain point? Capital management should also be part of the plan. And you should have this planned out ahead of time with if-then statements (i.e., “If this happens, then I’ll do this.”).
So there are a lot of considerations when it comes to the trade plan. And you have to test your plan before launching it in order to determine whether or not it has positive expectancy, which basically means whether it can be expected to make more money than it will lose over time.
If there is positive expectancy in the plan, you understand the overall strategy inside and out, you’re comfortable with its execution methodology and you believe the current market environment may be favorable to it, then you’re prepared for takeoff.
So now you must have the DISCIPLINE to follow your plan. This is just as important if not the most important part of effectively applying your strategy.
In order to generate those expected net profits from your strategy – to make that delicious cake, in other words – you need to stay disciplined in the markets and execute your trade plan the way you designed it.
What kind of cake would it be without the sugar or with way too much salt or if it’s baked way too long? Not the delicious one you’re trying to make, that’s for sure.
Not following your trade plan can lead to losing money even for a strategy that shows immense promise. You can have the most brilliant strategy known to mankind but if you don’t follow the plan it could very well end up being just another unprofitable or underperforming strategy.
If you’re greedy and stay in the trade too long in an effort to make more money than you had originally planned (done it), or you talk yourself out of that stop loss (done this too), you could even experience a catastrophic loss. Obviously, you want to avoid this at all costs.
And in order to execute your plan you have to actually be willing to follow it. This means you have to build and develop plans that work for your personality and lifestyle. Otherwise, you simply won’t follow them.
For instance, if you work full-time and you decide you want to swing trade equities but your plan requires that you’re at your trading desk for most of the trading day there’s no way you’ll be able to stick to it. It just won’t be feasible.
That’s a fairly obvious example. But then there are trade plans that may fit your lifestyle but don’t end up fitting your personality. These situations aren’t always as obvious.
These kinds of trade plans may seem feasible at the beginning because you think they’ll be easy to follow. But when you get out into the live markets it can be an entirely different story.
When I finally got to the point where I was confident in my stock-picking abilities I realized it was just a matter of figuring out how to take advantage of probable price moves by developing the right plans for the right setups.
So I put together plans with long options I thought for sure I’d follow. I followed them for several days, happy to take profits in the winners. But when I would hit those inevitable losers I just didn’t want to deal with the work of taking off losing positions. So I would talk myself out of stopping out and would almost always lose more than I’d planned.
You see, the winning positions were easy and fun to deal with: I’d take those off and pat myself on the back. But when I had to take off the losing ones I’d balk and just make them worse. And then the positive expectancy of the whole strategy would go out the window and I’d have to go back to the drawing board. Needless to say, it was very frustrating.
But this motivated me to develop exit plans that fit my personality and didn’t make me hesitate when it was time to execute them. It was this persistence that ultimately made these swing strategies some of the most valuable trades in my collection, because their particular environments tend to come up often.
If you can persevere through these tough trials and come out on the other side with solid trade plans for your strategies, you are prepared with a profitable core approach that is ready for any environment thrown at you.
And if you’re willing to execute your trade plans in a disciplined way then you’re that much closer to consistent profitability.
So now it’s time to stay FOCUSED.
Once you’ve reached this point the last thing you want to do is get distracted and stray from your core approach. The last thing you want to do when you get to this point is to lose focus.
This is also how you can add other strategies and concepts to your repertoire. Staying focused on what you do in the markets and getting better at these things is absolutely vital to understanding what to add and what not to add to your core collection of strategies.
If trading futures intraday doesn’t fit into your core approach, don’t add it. Stick to your proven disciplines. But if it DOES fit then work on it, test it and trade it live when you’re prepared and disciplined. And then maintain focus on it as a core strategy.
And as you stay focused on your core strategies, applying preparation and discipline every time you enter the markets and staying flexible through changing environments, you get better and better at what YOU do.
Establish who YOU are in the markets and stay focused on that!