This week, we’ve seen some volatility in the market that we haven’t seen since May — the last time President Trump escalated the trade war.
If you’re anything like me, you were enjoying the simple ebb and flow since the most recent lows in May. Well, with the most recent Fed decision, and the additional 10% tariffs that’ll be imposed on China in September, a new dose of uncertainty has been injected into the market.
More than anything, what the stock market does NOT like, is unexpected events that cause uncertainty. It’s certainty that keeps the market solvent.
When the market’s volatile, THIS serves as a good reminder…
Reviewing Your Trading Plan
Look at your trading plan if you’re not happy with how your portfolio’s fluctuating in this volatility.
As a swing trader, my portfolio definitely goes through swings — with the ebbs and flows of the market.
Granted the market ebbs and flows most of the time. But then there are moments like this week, in which we saw two days of violent downside movement along with a shot higher, squeezed in the middle.
These are the weeks that’ll try a solid swing trader more than anything. They try your patience, your emotions, and cause you to question your plan.
When you see red, emotion can often overtake, especially after getting used to the past few months that have seen relatively little volatility.
So, let’s review some key components of your trading plan.
Oftentimes, I’ll get emails from traders asking what they should do with certain trades or positions, when the market’s crazy. My response is usually, “What was your plan for this type of action?”
Your trading plan should really incorporate two key pieces. Here’s the trading plan overview, and then the detailed breakdown.
Your trading plan overview should outline the following:
- The setups you trade. A setup’s the reason you get into the trade. Is there a squeeze? Do you have a Fibonacci setup? Are you trading earnings?
- The strategies you use. These should be strategies that you know how to use. Some like calls and puts, some like spreads or butterflies. Using a strategy without knowledge of how to properly use it is a recipe for disaster. But, that’s why we have education and classes!
- Defined entries and exits. With each setup and strategy, you should know when and why you’re getting in and out.
- How you manage your time.
- Which time frames you trade.
- Psychology hacks.
- Plans for additional education.
- Risk parameters — per trade and per overall account.
All of this should equal a written plan that you follow!
The Detailed Breakdown
As for your trading plan, you must outline each of your setups, and the following factors for each setup.
This way, each setup, and each trade, will have these Five Components:
Why Follow this Formula?
Each trade should be carefully crafted based on the above parameters, based on a specific setup and strategy. These aren’t gambles, or random thoughts executed with money. It’s a well thought out plan that’s based on probability.
I know my strategies. I know my parameters. Do you?
If you don’t, make sure you include them in every single trade.