If I don’t know exactly how I’m going to play the next trading day I don’t do anything. Having some type of plan and reasons to buy/sell are so essential to one’s success. In addition to making a plan you have to stick to it and not let emotions change your plan midstream. There is a time and place to let your gut feelings alter your strategy, but when you let those feelings guide you, make sure to keep exposure to potential losses to a minimum.
For instance, if your in a number of positions and your gut is telling you to go to cash, then go to cash. If you already have profits in those positions then taking your profits and moving to the sidelines can’t hurt you. You can always get back in at some point in the future. Besides, greed could have been keeping you in the trade and that’s never a rosy outcome.
Another scenario is you are waiting for a trade to come to you but you can’t wait any longer. If you must do something now, the do it in a smaller trade lot. That way if you do turn out to be right you at least make some profit, and if it goes against you, your losses are kept in check.
An example of this is yesterday I sold out of my longs an hour before the close because I recognized the triple top that was forming on the Dow. Upon closing my positions I thought I might as well go short something but I didn’t have a plan. Since I thought the overall market would move lower I opened a small position in DXD and satisfied my want to trade. I got some exposure to the short side, capitalizing on some gains, but kept my potential losses small if it went against me.
Trading Trap #4 from Janice Dorn
Make a plan. This plan is what resonates with your brain structure, trading personality and money attitudes. Make it as simple as possible and then trade it consistently, day after day. If the plan is not working, change it until you get one that works for you. If it is working and generating profits for you, keep it. Don’t try to fatten it up, give it more bells and whistles or get greedy with it. If it’s broken, fix it and if it isn’t then leave it alone. Keep it simple and keep going with it.
Look at your plan every night after the market close. Write down how it worked for you that day and then contemplate and write down how you will use it the next day. In your nightly preparations and your preparations before the market opens, review your plan, Ensure that you are ready to execute, that you know what you are going to do, when you are going to do it, and then just do it—then execute ruthlessly. This is one way to empower yourself and grow in confidence as a trader. Winning in the markets, sports, business and life is about superior positioning, planning, reviewing, reworking, and executing over and over again until you get it right in a way that is seamlessly competent.