Plan

A way to make money in the market is to have a detailed plan. There is no game if there is no plan—you will hustle, you will stumble, you will lose. A trading plan is essentially a series of if-then statements. In the beginning, your trading plan will be very simple, like: if a stock holds above $50 for 20 minutes, then I buy 100 shares and sell them at $51, or if the stock drops below $50, I sell. With experience, your trading plan will involve more details, like: if a stock is above $50 and consolidates there for 15 minutes while the S&P 500 is making pullback, I buy 200 shares and place a stop for half my position just below the consolidation, and a stop for the second half below $50. I’ll sell half my shares if the stock reaches $51, and I’ll trail my stops to protect my gains.

• Having a simple plan is better than having no plan.
• Plan the trade, trade the plan. Trading is hard because you will be wrong a lot. But remember, we are not here to be right; we are here to make money. It’s OK to be wrong if you stick to your plan. Sticking to the plan is hard because you use different parts of your brain when planning and executing. Stick to your plan in every trade. Taking a trade you haven’t planned, or not taking a trade you’ve planned, means you’re not sticking to your trading plan.
  • It’s much easier to follow this simple rule if you develop your trading style based on your strengths. One person might hold 1,000 shares for a full 10-point move in 2 minutes, while another finds it easier to hold 20,000 shares for a 50-cent move in 2 hours.
• Don’t change your plan on the fly. Stick to your initial plan, and after the trade is done, study where you could have done better. Only then should you incorporate your observations into your next trading plan.
• Never get into a trade if you don’t have a plan. Don’t impulsively buy or sell when the next market guru on CNBC tells you to. Always develop your own plan.
• Log your trading plans concisely. How do you know if you are trading well or if the market is simply favoring you? The answer is: compare your execution to your initial plan. That’s what professional sports coaches do after each game.
• Failing to plan is a plan to fail.

Patience

Patience in trading means waiting for a really good setup with an edge. Remember, your best wins will come from the easiest setups. Learn to wait for them. A great analogy here is the cheetah. While the cheetah is the fastest land animal on the planet, it still hunts the slowest gazelle.

• When there is nothing to do, do nothing. You don’t need to be in every single move—just the ones that make sense to you and have an edge.
• Don’t anticipate. Trading is not about capturing the whole move, but rather the best part of it.
• Do not chase. Chasing is worse than missing a trade because missing a trade is a mistake that doesn’t cost you money.

gl hf