Hi Mike,
How are you doing?
I have an interesting question when I talk about trading plan with a local trader. Regarding trading plan, my idea is: trading plan is your preparation for next trading day, but I have to be flexible after the market open. which means occassionally I have to take some trades not on my plan.
Trading plan is like the preparation for a golf game. The golf player has to know the weather, the green speed, the course, but he also has to be flexible to play according things happened on the golf course real time.
However that trader believes the trading plan should include everything, otherwise it is incomplete and if I take trades not on my plan I’m violating my own trading rules.
I really like to hear your comments and what do you do when the price goes off the chart, like the NFLX on Jan 24?
Thank you!
Bella:
Good question. I am not sure what you mean by sticking to your plan. Do you mean trading the stocks you planned to trade? Or being wedded to how a stock should trade??
SMB Reader:
Hi Mike,
Really love to hear your reply.
By sticking to one’s trading plan, that trader means only trade those stocks he planed to trade and the trading plan should include every situation. The trading plan we were talking about is like the “if…then…” statements as you described in “One Good Trade”.
However, because I know I cannot predict every action of the market, I allow myself to take some trades which are not on my original trading plan, especially when a breaking news hit my stocks and they opened totally out of my original trading plan. I’ll make decisions on the fly.
His way to handle this kind of situation is set some rules to let go those “opportunities”, only trade when stocks move according to his plan.
So I called him too stubborn and he believe me actually violating my own trading plan.
What do you guy do? Do you only trade the stocks you plan to trade and in the way you plan to trade?
BELLA:
Personally I like to prepare for the trading day and choose the stocks, price points and patterns I most want to trade. But then from there I am open to better opportunities breaking intraday. That opportunity must be greater than my premarket planned trades. Also I may decide to intraday swing trade my premarket planned trades which does not require as much focus, so I can then spend more attention on the breaking opportunities.
Having said this, there is no right answer. If sticking with only your preplanned trades works best for your friend then he should stay with that. I have encouraged some traders to be more open-minded about breaking opportunities. Some psychologically cannot handle this uncertainty. I wrote about this in my next book, The PlayBook, which you can preorder here. A loss in a play that was not planned by them sends them into a psychological spiral.
To me this is analogous to recommending traders step outside of their comfort zone. Some traders, a minority, just cannot do this. They are consistently profitable traders if you let them do what is most comfortable to them. If you push them into other plays, and they lose, they get irrationally upset. Better to just let them do what they do well.
For most taking these breaking news opportunities that are better than preplanned trades is best. For some it is not.
I hope that helps.
Mike Bellafiore
no relevant positions
