Monday, January 25, 2010

Adjusting your game plan

Many good traders have a game plan for a particular day, week, year, etc... One thing we have discussed at Trading RM is when to deviate from your game plan. It is great to have a game plan. But if the game plan is so rigid as to prevent you from a winning trade, then it is no good.

To take a step away from trading: say a particular football team has a plan to establish the run to open up the pass. It may come to be that the opposing team is running run blitzes on 60% of the downs to start the game. This may open up an opportunity to pass to the tight end. The coach will have to adjust to this and use the pass to set up the run.

Sometimes I catch my daily game plan being too rigid in the following examples:

  • "I just got back from days off I am going to trade small." -the market does not care that you were on vacation, today may be a day to trade large
  • "I am no going to trade the open, the first 10 minutes have been unprofitable." - again the market does not care about the past. Today may present a 8 out of 10 opportunity in the first 10 minutes of the day.
  • "I am getting killed on shorts I'm only looking at longs." -It may be true that my short set ups have not paid, but today shorts may pay
  • "I am not buying highs or selling lows." - Today chasing" may pay.

The key for me is to create an open ended game plan that uses positive language. So instead of "I am not going to..." I say I will short/trade the open/up my size when I see x, y and z characteristics.

The examples are endless. Even famous TV icons sometimes develop too rigid of a game plan. Ronnie from MTV's Jersey Shore once said:

"never fall in love at the Jersey Shore."

As we see below he adjusted his game plan.

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