“Fight the need for certainty” – John Carter
As I sit here, watching the market fall out of bed — it just dropped over 50 S&P points in 25 minutes — I’m reminded, yet again, one of the most important pieces of any trading plan…
“Anything can happen.”
This is one of my favorite pieces of advice from Mark Douglasses book, Trading in the Zone. I’d say that this book has created the cornerstone of my psychology section of my trading plan.
One of my favorite pieces of this book comes from “The Probabilistic Mindset”.
Here’s a special download I grabbed for you all about it…
Days like today, can make you feel whipped around, and get caught in emotional decision making.
Now, there’s a time and a place for “close first and ask questions later,” but usually, when the market gets hit on bad news, taking some time to see the trade from a non-emotional perspective’s the best bet.
It’s also a great time to reference “The Probabilistic Mindset” — and also, to use the market internals.
You Don’t Need to Know What Will Happen Next
I know it can seem like you need to know everything that’s happening… especially what’ll happen next, but that’s simply not possible (and it’s not really helpful to your trading).
I don’t know what the Fed’s going to do. I don’t know what the President’s going to do. I have no idea what China’s going to do.
Yes, I can look at our data. I can read Fed statements. I can see that the trade war IS impacting certain sectors and industry groups, and it’s impacting the economy enough to cause the Fed to cut rates. However, this is all backdrop to the technical analysis I use to actually trade.
Looking for a Sale
Generally, spike lowers like this in the stock market are great times to get long with strong stocks. Now, I usually like to time it and wait until the market leaders start gaining strength to actually get long, but that’s my basic mindset.
However, there are times where this isn’t ideal. For example, when the market leaders are getting crushed isn’t the time to get long. This is what happened throughout October-December 2018. This wasn’t ‘buy the dip’ until after December 25th.
How you Handle It
These types of moves can cause significant stress, especially depending on how you’re positioned. The most important part is to train your mind, and focus on your pre-determined entries and exits.
Are your stops getting hit? Are you stop losses getting taken out? Is your setup still valid?
Always look at your setup before ALL ELSE!
Here’s How I’m Trading This Week
This week, I’ve remained mostly flat until after the Fed meeting yesterday (and initial spike down). Then I began adding conservatively… until this China news hit.
It’s the emotional — the psychology portion — of your trading plan that really comes into play when the market has been as volatile as it has been the past two days.
So tomorrow I want to talk to you about how you can improve your trading plan. This’ll include an outline every trading plan should follow. It’s crucial in all market conditions… but especially volatile ones.
As a new options trader (2 months) you have helped me the most. I appreciate the thorough analysis you put into your trades. Everything started to gel for me taking the Stacked Profits class with you. It helps to have an experienced trader like you to help with the psychology of it as well, especially after the last two days.
Thanks for all you do.
Thanks for the thoughts John. It is certainly difficult to stay the course when your account is decreasing one trade at a time. Trying to have resolve and stay the course.