Monday, April 18, 2011

Subtlety to the Often Mentioned Mantra of Follow your Trading Plan

I've been trading for about 4 years. The difference between a veteran trader and a novice is humongous. I feel intimidated by the amount of information available online. It's a form of information overload. Even veteran traders, after 10-15 years trading, are not 100% sure the methodology they use will work. If your success rate is greater than 60% or 65% then congratulations are in order. There are a ton of different methods to trade equities. Methods come in and out of favor constantly. Compounding the problem is the fact that different methods work better at different times. Not just bull versus bear markets but different asset classes or different macro economic settings. The good traders are the ones who constantly experiment and still don't think they have it all figured out.

When talking to someone about stocks, you don't know who you're talking to. He/she could be a 10 year veteran trader who has found his own unique methodology or a college student who finds penny stocks and trades  with limited resources.

There is a  forum article that explains it well.
"Always DD any stocks that you're interested in, and remember their source in case the DD is great, or just hot air! I've found out over the years that some people have great picks most the time, others hit and miss, and a few just guess in order to join in on the conversation – know the winners! Some give a tip and cannot even read a chart, or pump a stock, giving false information!"

I'm starting to realize that so much study is required for trading stocks. So I "buckle down" and put in trading rules for a proper money management plan, a risk/reward plan and the entry/exit strategies. I do my due diligence as best as I can and don't rely on "Hope versus Homework".

Yet there is a subtlety to the often mentioned mantra of "follow your trading plan".
Consistency of "follow your rules" also include a consistent execution plan to finding the stocks your are watching. Pick one tool or analysis. Master that idea, before adding any more. That consistent trading discipline or methodology, allows you to master your unique trading style. Only then can you become good enough to constantly experiment without getting waylaid. You want to stay within your self-made plan and pick what matches your style.

I find that something I read years ago, tried and dismissed, sometimes on rereading will become the foundation for a tremendous step forward in my trading success. But I still don't have it all figured out. Too many ideas just makes your trading haphazard and the results inconsistent.

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