Friday, October 27, 2017

How to Follow Your Trading Plan | Trader Psychology

Trading Psychology question for today...

What’s the most effective way to follow your trading plan?

Some days are easy, but some days I catch myself gambling, do you have any tricks?

This is a great question, and definitely something that every trader struggles with.

I could take the next few hours and cover all of this, but you guys are busy, so let me try to boil this down into a simple formula for you.

The strategy for being effective & consistent with following your trading plan would have five (5) main categories:

1.      Trading Plan You Trust
2.      Social Pressure to Follow the Plan
3.      Lifestyle
4.      Diet
5.      Self-Talk

The Trading Plan

Let’s start with the trading plan itself, because you need to have a plan that you TRUST if you’re going to be successful.

First of all…the financial markets have no rules. 

Outside of your broker requiring margin in your account, and the trading hours of each session, the markets don’t really offer us any rules to follow, which sounds like a good thing, but it’s really a bad thing. 

The problem is, we humans, when we don’t have any rules to follow, we let our instincts do the work, and our instincts don’t make for very good trading results.

For example, it’s natural for someone to want to buy as price is rising because of the fear of missing out, when in reality, anyone with a drop trading experience knows that “buying high” is a horrible strategy.

If all it took were instincts… everyone with a pulse would be making money in the markets, and we know that isn’t true.

So, we can’t rely on our instincts, we need to make our own rules to follow if we’re going to be successful.

However…unless you’ve never traded with real money at risk before, you already know that following those rules can be really hard to do consistently.

So, we know we need rules, but those rules are hard to follow when there’s money on the line.

Let’s get back to the trading plan…

It all starts with the trading plan, and this plan needs to cover everything, which is hard for someone who doesn’t have any experience.  Do you see the double-edge sword here?

You need experience to develop a plan, and you need a plan to get experience! Sounds like my first three attempts to get a job at an investment bank when I left college.

The biggest challenge you’re going to have as a new trader is designing a plan that actually accounts for ALL possible scenarios you could see in any given trading day.  This is where a little experience comes into play. 

You have to develop a trading plan that covers all scenarios, so no matter what happens... bullish, bearish, range-bound, weak trend, strong trend, runaway trend, news day, etc, etc, you can focus on following your rules, rather than relying on your instincts.

Now let’s talk about trusting that plan… because you can write a new trading plan, but that doesn’t mean you’re going to actually trust that plan!

How do you trust your plan?  You need to have followed the rules of that plan for at least 90 days and see it produce positive results. 

Again!  Another double-edged sword!  I need to follow my plan BEFORE I can effectively follow my plan?  Yes!  If you don’t have any experience following your trading plan, how will you tell that little voice in your head to shut-up and let you do your work?!?!

Remember, when the market moves quickly, you are going to naturally want to trade like a HUMAN, but that doesn’t make us money, so we need to rely on that trading plan.

Social Pressure:

Now let’s introduce the strong force we deal with as humans, and that is, social pressure.

I talked about this in an earlier video, but social pressure is stronger than gravity.

Most people will do whatever it takes to avoid looking like a fool, or embarrassing themselves.

My biggest trick for following your plan is to tell someone who you admire and ask them to hold you accountable.  Even better, tell 3 friends, so they can all cast shame on you when you don’t follow your plan.

Lifestyle & Diet:

I think one of the least-appreciated topics among professional traders is their lifestyle choices, which also include their diet.

In order for me to follow my rules, I need to be locked-into what I call “the trader’s mindset” when Im trading.

That means… eliminating distractions from family, friends, work, etc.

For example, one of the first things I tell to anyone I hire here at is get their personal lives in order before they come to work each day. 

Arguing with your spouse, your kids, stressing out about your boss at work, or day dreaming about your upcoming trip to Fiji, whatever the distraction is, it has no place during those few hours each day when the markets are at their best.

And it really is only a few hours.  I know that price-action is at its best from 7am to 12pm EST Monday through Friday, and I need to make choices regarding my lifestyle that allow me to be 100% focused during those few hours of the day.

Let’s also think about diet.  For example, it’s easy to drink a few too many glasses of wine the night before.

Or, if you’re like me, you like to drink coffee, but stimulants make it a LOT more difficult to sit and wait patiently.

So skip that extra glass of wine before bed, and wait until after you finish trading to enjoy your coffee.

If you want my personal opinion, I think an evening routine, combined with a good breakfast is the most effective way to do it.

That means, planning the night BEFORE you trade, to make sure you’re awake and focused on your trading. 

Also… the food you eat before you trade should NOT make you tired, it should make you alert!  I will be sure to do another video on the topic of what you should be eating before (and after) you trade, so look for that in the future.

So lifestyle and diet choices, in my opinion, are some of the most important aspects of following your trading plan.


Last, but certainly not least, is how you speak to yourself, which most shrinks would call “self-talk.”

I have to admit, this is something that I have used personally that has made a tremendous impact on my personal and professional life.

Human beings are very similar to animals in the sense that we respond best to positive reinforcement.  In other words, we see greater progress when we are rewarded for doing things correctly, then if we are punished when we don’t.

The bottom line is… the way you speak to yourself is going to make it easier or harder to follow your plan.

And let’s be very honest, it takes discipline to use speak to yourself positively when things don’t go our way, so this might not be easy at first.

My best advice would be to start paying close attention to how you speak to yourself this week.  Start keeping a journal, and use a highlighter to make GREEN when you say positive things, and RED when you say negative things. 

You’ll be surprised how often you talk negatively about yourself, and that isn’t going to make it any easier to follow the plan.

Encourage yourself to follow the plan, and be supportive of yourself when you make the inevitable mistake of not following the plan. 

You’re going to be a “work in progress” until you make this a habit, and you need to be conscious about this part of your trading.

Ok, we’ve covered a LOT in this video, let’s recap:

There are five (5) main aspects that affect our ability to follow our trading plan:
1.      Trading Plan You Trust (covers all the scenarios)
2.      Social Pressure to Follow the Plan
3.      Lifestyle Choices
4.      Diet Choices
5.      Positive Self-Talk

Please don’t forget…

I provide a copy of my trading plan to all of my clients here at, and that plan covers all the different scenarios we see each day.

I can also act as your built-in “social pressure”, making sure you are aligning your lifestyle and diet choices to help (not hurt) your chances of success.

And when it comes to self-talk… I agree with my old friend Winston Church who said, “I am an optimist. It does not seem too much use being anything else.”

Guys and gals, I hope you found value in today’s “trader’s mindset” video.

I’m always looking for new ideas and topics… so would you be kind enough to drop me a comment below the video with some new ideas? 

And make sure you share this video with a friend, because it doesn’t matter what market your trading, everyone struggles with these same topics.

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  1. I think about all your points every day, all day, and have been for years. Unfortunately, old habits die hard...

  2. I agree with you on that Fred... if you ever need any additional help, my trade room is a great place to make sure you're following those rules... you can find me there every morning @ 8am EST. - JJ


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