In Rule # 5 – we’ll look beyond scary stories of traders blowing out their accounts because they’ve used the HWP method. That’s the ‘unprepared method’ of Hoping, Wishing or Praying. Instead we’ll look at more ways we can prepare ourselves to be ready to trade. Being successful in any field requires being prepared on multiple levels.
“I’ve seen too many traders staring panic-stricken at the computer screen and begging the market to move their way. Why? Because they have lost their discipline and allowed what was a small loss to turn into a much bigger one. They keep hanging on, hoping, wishing and praying for things to turn around. The reality is on the screen. When the market hits your stop-loss level (the pre-determined price at which you will cap your risk), get out.” Lewis Borsellino
Challenge # 5 – Being prepared for the unexpected.
I turned on the TV Sunday morning to find the final stage of the Tour de France about to finish as the colorful cyclists wrapped around the Champs-Elysees and Arc de Triomphe. In top physical and mental shape the competitors become one with a well-tuned piece of machinery to have a chance to compete over 21 grueling days of racing that will test both their strategic competency and their physical endurance. While each of these cyclists may be hoping, wishing, even praying for a successful outcome, I know that’s just the frosting on a very multi-layered cake. It all comes down to the last few seconds… or does it? NO? The winner is not the first man across the finish line today. The winner is Vincenzo Nibali, an Italian on Team Astana who has led for 18 out of 21 days over the routes’ varied terrain through France, England and Spain. Nibali is the winner because he consistently came out ahead through different conditions over the course of the race. As traders we seek the same goal, consistency in trading through different market terrains over the long haul. What can we learn from these guys that maintain consistency despite an inconsistent playing field?
- First, they train in different environmental conditions covering varied terrain and unexpected weather.
- Second, they are physically prepared with nutrition, hydration and rest.
Lack of preparation in either of those two areas would lead to certain failure. Lewis tells us trading reality is on the screen. Every day the market presents a new terrain. How do I prepare for the unexpected?
Solution # 5 – Know what you’re watching for so when it happens, you’re actually ready.
Like professional cyclists, we won’t know for certain until we turn the corner whether or not the terrain will be smooth or bumpy. We won’t know ahead of time if it’s going to be choppy or trending or if the volume today will be just liquidation or new money selling. We can however be prepared to act.
Preparing your trading ideas in advance is a crucial habit for long term success. The experts in performance are able to make decisions in the moment because they are prepared via training and experience. Nibali knew what to do during a slow rain in the last stage on slippery cobblestone. Other riders were caught off balance on the slick cobblestone and paid the price.
Lewis is telling you, know what to do in the heat of the moment. That’s not the time to ‘think about it’. How did you prepare? You studied the charts, marked some reference points and maybe developed a bias? When the market comes to your area of interest, do you know what to do? Have you considered what you would expect to see?
- What the market has done and more importantly, how well has it done it?
- Under what conditions will I look for long or short entry opportunities?
- What will the reality on the chart look like? What shouldn’t it look like?
- Where is my trade idea invalidated? (This is the place where I will exit the position NO exceptions; this is how I will survive to trade another day.)
- Where will I exit with a profit?
Knowing these factors in advance helps so you don’t have to think them through in the moment. You simply take action. You know when your indicators… volume, value, whatever you use, are in alignment; the weather is clear… take – off!
Resources – A great book, The Power of Habit will inspire you to create helpful and healthy routines. Recent research reveals we can change old habits and instill new habits. People succeed when they identify patterns that shape their lives and learn how to change them.
A lot of traders have found Evernote a very useful and free tool for daily notes.
The Trading Journal spreadsheet mentioned in Rule # 2 resources has a section called Personal. This is a convenient place to keep track of rules and experiences for later reference. You can make your own if you have excel skills. (Mine made the purchase the low cost alternative.)
If you already have Microsoft word, you probably have One Note. It’s easy to use.