Have you watched “Star Trek: The Next Generation”? One of my favorite episodes is when the Enterprise gets into a battle with The Borg. The USS Enterprise is getting hammered. Fires are breaking out, sparks are flying everywhere and people are running around screaming. Then there’s the Captain Picard, sitting in the Captains chair, confidently doing the tasks that will bring the battle to the best possible conclusion.
Don’t you wish you could behave that way? I did. In fact I wanted to be that guy. Not on a starship but in my “trading” chair. So I got thinking, “What gives a person the ability to make confident decisions when the world is falling apart around them?”
Then the answer became very clear. The Captain had a well-defined plan. A plan that told him what to do when things go wrong. A plan that he had practiced hundreds, if not thousands of times in simulation and in his imagination. So when the time came and crisis was upon him, he knew just what to do.
So that’s what I decided to do. I began to make comprehensive plans that covered virtually anything that could happen. Market crashes, technology failure, power outages, even my own death and I practiced it hundreds of times. The importance of a well-thought-out trade plan with hundreds of variations—except for the death part.
The reason I bring this up is because Monday was one of those crisis days. I had a whole bunch of “market neutral” positions on the RUT that were already stressed because of the previous 60-point drop. Monday morning comes with a rapid 10-point down move that gets my attention. It isn’t too much of a problem but I do need to adjust about six positions at the same time so I get to work. I get about 1/3 of the way through the adjustments and RUT is down another five points. OK, so now the trades I just moved need to be moved again, the other ones are overdue and I got two others that need attention. Now I need to move eight positions and RUT is down another 5 points.
Oh, look at this! I just got six Skype messages and about 10 emails from clients who are probably freaking out. I know they planned for a down move, they had to. They must have the “deer in the headlights” syndrome (as we say in here in NH) and can’t get themselves to take action. So I prompt them to action. “Follow your plan. Do it now!” Press send. Then I get the second message, I didn’t think this was going to happen, now what do I do. So I start analyzing positions to see if I can help.
I glance at the market and RUT is down another 10 points a total of 30 points off the open. Oops, there’s another 20 emails. And did I mention I’m doing all this while executing orders and negotiating prices for eight trades on three different trading platforms?
Then it dawned on me, I am behaving like a starship captain in battle. Wow, what feeling! Could I love trading any more right now?
Being able to manage eight trades in a huge down move and remain completely focused is quite impressive, but doing it while analyzing client’s positions and answering emails, well that’s amazing. Or is it?
The truth is that only reason I was able to hold things together was because I had a detailed plan that I’ve practiced over and over again for this type of situation, so when it happened, I was ready.
You don’t have to be super smart or a master trader to act confidently in a crisis, you just need to be prepared. You need to be willing to put in the work. Create a well thought out trade plan that covers just anything that could possibly happen and then practice, practice, practice and you will become amazing too.
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Live with passion!
John Locke
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One Comment on “The Importance of a Well-Thought-Out Trade Plan”
I understand importance of creating plan. But could you briefly elaborate what was your plan in this case?