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Plan Your Trades and Follow Your Plan - Stock and Forex Trading
Scuba divers have a plan to follow every time they dive and so should traders...A colleague of mine just returned from a scuba diving trip in Cozumel, which just happens to be one of my favorite places to dive. Anyway, she was telling me about an unexpected difficulty she encountered while swimming around the corral reef down about 85 feet. It wasn't anything serious, but her story reminded me of something my scuba instructor used to say over and over again. "Plan your dive, and dive your plan". There is a similar need in the worlds of stock trading and Forex, to follow the same dictum.When you're down about 90 or 100 feet the nitrogen acts on your body in a way that's not too dissimilar to having one dry martini too many on an empty stomach. It's called Nitrogen Narcosis, Rapture of the Depths, or Martini's Law. So the thing to do is get your planning done while you have a clear head, (i.e. on the surface). And then when you're deep into it, and you're feeling a bit euphoric, or nervous, you don't have to make any decisions about 'what' to do - you have already decided that before the emotional roller coaster starts. You just follow your plan. This holds true for trading as well. When you're feeling the euphoria or nervousness set in, remember to follow your plan. Which means, that you have to have created a plan to follow! Clear heads will prevail over the long term. Years ago, I had the good fortune of talking with a trading guru for several hours. This individual is world renowned for his trading saavy and skill. What he elaborated in that conversation had a tremendous impact on me. HE said that when he was learning how to trade, his family enforced only one rule, that he had to follow. KNOW WHERE YOU ARE GOING TO GET OUT BEFORE YOU GET IN. He felt that the problem that most traders have was that they felt that this simple rule did not apply to them. I remember sitting and speaking with him and thinking about my own mistakes... How I sometimes was letting hope take over in my decision making. I've learned to be prepared ahead of events, when I trade. It's made a world of difference. Many traders think that crying "UNCLE" on a trade and taking a loss is unacceptable. Since that conversation, I have taken numerous losses on trades. But it's funny, how they don't have the STING that they used to. Why? Because I PLAN MY DIVE and DIVED MY PLAN. When a trade moves towards the loss column, while disappointing, I have a plan to handle the situation. I know what to do, no matter where my emotions are at the moment. This is really simple and incredibly workable. Apply it to your own trading and investing. You will cut your losses sooner and be prepared to take advantage of opportunities quicker. You will be more aware and learn more from your mistakes... About the Author: Scott Harker is the publisher of several websites including: Sherlock Holmes Pastiches, Harvest The Sun | Renewable Energy, Coin Collector's Dream, Dieting Help | Move More - Eat Less, and On The Hook | Fishing Supplies.
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