|
Back to Basics
1: Defining Your Trading Plan.
Since I coach in trading psychology (rather than the mechanics of 'how to trade’), when I work with someone for the first time I like to make sure they are clear on their methodology and the strategies they use. Their 'Trading Plan' in other words.
This accounts for approximately 50% of successful trading; the other 50% is the 'Mindset', the mental side of trading.
I am often surprised to discover how many experienced traders don't have a clearly defined methodology; they have been trading so long they seem to have forgotten the mechanics: the nuts and bolts of their daily trading. This can be dangerous!
More often than not, without realising it, they set out to lose rather than win! From the start of the trading day they unconsciously set the day up to be difficult rather than easy. Some are lucky to be making a living, let alone hit full potential.Similarly, with traders who are not confident about their abilities. They may feel they have 'lost it'. Or, perhaps the markets have changed and they are no longer able to keep pace.
Trading is just like riding a bicycle: once you know how to do it, you can always do it! If the terrain changes you might need to change your style or learn some new techniques. Sometimes it is necessary to change the bike itself, but the basic principles of ‘how to ride a bike’ remain the same.
Henry Ford said "If you believe you can or you believe you can't, you're absolutely right!" In order to maintain confidence in yourself and re-establish self-belief you must have confidence in your method of trading - your ‘Trading Plan’.
Here is an exercise for getting clear and defining your trading plan. Whatever level of experience you have the stages and questions remain the same:
i) WRITE DOWN YOUR TRADING PLAN.
Are you clear on your Trading Plan ? If you have difficulty articulating the concept, then you don't fully understand it yet. You should be able to write down your Trading Plan clearly and logically.
You may think you have mapped out your plan clearly in your head, but try committing it to paper! If, in fact, the plan is unclear, committing it to paper will not come easily.
As you are writing you will probably recognise there are two distinct and equally important parts to your plan: one part consists of actual trading strategies, the other will be your 'rules' for trading.
ii) PROVE YOUR TRADING PLAN.
Have you been able to consistently stick to your trading plan and make money? If not you need to make a distinction - is the methodology at fault, or have you been erratic in your approach and not done what you know you should do? If you have been erratic your plan may not be at fault, but your level of discipline and self-control. If you are a good technical trader but just don't achieve results it is probably because you do'nt have the right mindset.
Have you been able to apply your trading plan and make money? How many times have you applied your plan and had it work for you? If it has consistently made you money in the past, then you may well have a good plan, but (maybe without realising it) you have stopped using i.e. you have been erratic in your approach and not done what you know you should do? If you have been erratic, then it is not the plan that is necessarily at fault, but your level of discipline and self-control. If your plan has consistently let you down, then the methodology may be at fault. Again if you are a good 'paper trader' but just don't seem able to put paper into practice, it may be that do not have the right mindset to work to. More help with that to come!
2: Simplify, simplify, simplify!
I know there are other coaches who like to work to very complicated systems going through difficult to follow processes in order to pull a rabbit out of the hat. Equally there are traders who feel that unless they have slogged through the mire there is no sense of achievement in reaching their goal. I'm not like that, I hope you're not or you might need to stop reading this and find yourself another coach who does things differently. There are enough distractions in the market without getting caught up with complications so simplify everything you do, then simplify it again, then simplify it some more!
So, once you have gone through your trading plan, and written it down, ask yourself:
- "Does this make sense?";
- "Do I understand it fully?", then
- "What needs changing?" or
- "How could I improve on this?", and finally and most importantly
- "Have I proven this, and am I confident that using this plan makes me money?"
Once you have done this reduce the key points to concise bullet points . These should now constitute your rules for successful trading, those things you must do, and stick to, in order to be successful. Display them somewhere in full view when you are trading. Stick them up beside your monitor, for example, so you have no excuse to veer off your own path to success.
Talking of pathways to success and achieving goals here is a story I am fond of. I like to tell this to people to get them thinking about just what it takes and what the right level of motivation might be:
HOW BADLY DO YOU WANT IT? The Monk's Story
A young monk was sitting by the riverside with his Master. The young man was worried about his lack of progress, and he told the Master that for many years he had meditated and sought enlightenment in order to discover the true way, but still he had never come close to his goal.
"What must I do to find the true way and achieve enlightenment?" he asked his Master.
The Master looked at the young monk and, without saying a word, grabbed his student around the neck, pushed his head under the water and held it there for some time.
After frantically struggling for several minutes against the hands that held him down, with all the strength he could muster, red in the face and spluttering, the young monk broke free of his Master's grip and got his head above water, gasping for breath.
"Why did you do that to me, you nearly killed me?" he spluttered.
The Master replied, "When your desire for enlightenment is as great as your desire for breath, then you will be ready".
This story is often told in a Buddhist spiritual context, but for a trader the meaning is very clear. You must want to achieve your goal as badly as a drowning man seeks air. You must be absolutely committed, in your heart, and in your mind, to the goal you have set yourself. We're talking about your life here! How seriously do you take it? There is only one way to be successful and that is to do whatever it takes! If you're thinking about 'dabbling', or 'having a go' for a bit and seeing what happens, don't bother, because it won't work! No matter how great, or how small your goal, commit yourself, be prepared to do whatever it takes and GO FOR IT!!
Summary
- Define your trading plan
- Simply the plan
- Reduce the plan to key written bullet points
© Jeff Turner
