In the recent week, I have been doing some reflection as I
prepare to launch my new online learning hub (Yes, I will be launching
an online trading school, so stay tuned:D ) and I have been analysing
some trading challenges that are common to traders who are struggling to
succeed. As you could have guessed, these are usually related to
trading behaviours and habits - also known as Trading Psychology.
I'm
sure you realised by now that to become a successful trader, a sheer
amount of discipline is required. However, to be very clear, trading
success is not just about being discipline, it's about
having the discipline to stick to your trading plan irrespective of the outcome.
OK,
some of you might find this challenging and I understand that you might
have trouble keeping to your plans because of A, B, C and D reasons.
While I'm not here to verify if those reasons are valid, I want to
remind you that you need to remain focus in doing so. Because if you
truly want to succeed, sticking to the plan is extremely crucial for
your trading success. To support my point, here are a few reasons why
sticking to the plan is important.
1. Validating Your Plan
When
you first learn to trade the market, the first thing you need to learn
is to stay clam and relax when they are in the market. Let's face it,
emotional control is a continuous learning process. So, before you get
there, you need a reliable methodology to support your learning. While
you should start off with back testing, you will need to validate your
plan in a live market condition as well.
For a trading system to be thoroughly tested, (and here's the key) the system needs to capture
every set
up that meets the rules. This is important so that all boundaries of
the system are accounted for. This is important so that you can verify
and validate that you trading plan provides you with a solid trading
system.
Imagine if you only take the trades that you FEEL right
and you THINK is good? And you decide to ignore any trades because you
experienced a few losses recently or because a random newsletter gave
you a different bias. Do you think you can fully appreciate what your
trading plan has to offer? Do you realise, that by not following your
plan, you are not able to fully validate your trading plan?
Validating
your plan is also important so that you will learn to trust your plan
and that leads to an easier and easier trade execution.
2. Accelerate Your Learning
Keeping
to your trading plan is also important so that you can improve it. Yes,
of course you need to improve your plan. As you continue to trade the
market, you are (consciously or unconsciously) learning. Every time you
learn something new, you can always use it to improve the returns on
your investment and you do that through your trading plan. Above and
beyond that, what traders don't realise is that they can actually
accelerate your learning if you were to stick to your trading plan.
So my next question to you is this: - How can you accelerate your learning from your plan?
That's a simple but not so straight forward answer. If you were strict to follow to your trading plan
irrespective of the outcome,
then you will start to learn about yourself and how your plan is
interacting with the market. You see, when you keep to your plan
irrespective of the outcome, you will be asking questions like:
- Will I be satisfied if I reduced the reward for a higher probable outcome?
- What are the chances of getting similar outcome if I change my entry/exit?
- Is this type of trade suitable for my risk appetite?
Note:
You will only know the answers to the questions by following the plan until you have a large enough/decent sample size.
And you will ignore questions like:
- Will the market move higher/lower?
- What's the likely market reaction from Fed announce?
In other words, your focus will be towards making your trading plan better and you will start to
learn how to become a better trader as opposed to being a really good market analyst.
3. Detachment from Market
Here's
another important lesson that you can take away by keeping to your
trading plan. As soon as you start focusing on the plan, you will also
learn to detach yourself from the market.
How? Well, I'll try to flip this around see if it makes more sense.
Remember
that you have no control over the market and the more you focus on
something that you have no control, the more emotional one can get. For
example, some traders celebrate because they made lots of money over
one
trade. This is pretty silly because the fact that they made money over
that that is not a representation of the capabilities of that trader.
They don't realise that winning or losing one or two trades is merely
driven by luck. However, the fact that you overwhelmed by that winning
also means that you will likely get very angry or frustrated over a
losing trade. Remember that emotions work both ways which includes both
winning and losing trades.
So instead of that, putting all your
focus on your trading plan will help you redirect your effort and energy
at the right place. In fact, the more energy you put on your plan and
less on trying to predict the market, the more you are able to detach
yourself away from the market. And the more detached your are, the more
you can focus on making rational trading decisions.
Conclusion
I
can continue with a lot more reasons to why you should stick to your
trading plan. However, the 3 reasons mentioned above will be a good
starting point as they are enough to get you going.
With that, I
do believe every trader should focus on learning to stick to their
plans. It is after all, a skill that you can learn.
Thank you for reading and please share any of your comments in the box below.
