Watch this video on YouTube

So following on from yesterday, I like to say again, all wars are won before the battles are fought, right? That’s kind of a cliche. Victorious warriors first win, then seek battle. I want to help you refine a few things in, you’re trading right here. If you are taking risk home, taking it over the weekend, you still need to know what you’re going to do if the chart goes to a certain spot. What a lot of people do, and I think is a mistake, is they wait to read the chart and then they try to figure out what they’re going to do after the chart’s already moved. So the better way to do that is to always know where you’re going to manage the risk. Always stay in control. Obviously, the market is omniscient and it’s all powerful, omnipotent. That’s the way that it works. But the best thing that you can do in those circumstances is to make sure that you have a plan.
And most of the time that plan is focused on defense. Knowing how to enter traits to add risk is kind of easy. Knowing where to put your protective stops. That’s also kind of easy because you know the distance between your entry and exit based upon your position size, knowing your R how much you want to lose or how much you don’t want to lose, but how much you’re willing to risk in order to be in the trade in the first place. But then when you’re in trades, especially winning trades, this goes back to what we’ve been speaking about all week and a little bit from last week, although it was a shortened week from July 4th holiday, is how do you trade your P&L? How do you trade your equity curve? Because these are real life examples of things that you’re going to need to know how to do.
Again, in anticipation of market activity, you could always think about what’s going to happen after you’re out of the trade. What you don’t want to do is find yourself in a position that’s moved sharply against you, and now you’re frozen, like Bambi in the headlights about to get smashed by the car, and you don’t have a plan because at that point, it’s too late. The damage has been done. I know once in a while markets gap. That’s part of life, but it’s not the end all. Usually in those cases, your first loss is your best loss. So what I’m thinking is, what would you do then if you don’t have a plan for setting alerts or for managing your protective stops as the names move in your favor, now’s the time to start thinking about that. This is really vital because you don’t want to be in one of those situations where you buy something at $20, your protective stops at $19, it goes to $26, but you haven’t adjusted your stop.
Oftentimes that’s because maybe tactically you don’t know how to do it, but two, you love the feeling of having all those unrealized gains and you don’t want to get stopped out of the trade. So you leave the protective stop deliberately low. When the market starts to show you unrealized gains in that position, you need to be able to walk away with something. It doesn’t have to be the entire position, but you need to walk away knowing that, okay, if you adjust your protective stop, at least you’ll get knocked out having gotten paid something for the risk that you were willing to take. That’s something that you need to get used to doing because you’re taking the risk. And if you’re taking it home overnight and over the weekend where there’s a lot of alpha created, then you must be very, very proactive. Not necessarily in adding to your winners. That’s not necessarily something that everyone has to do, but I think you do have to be very, very proactive and very intentional in moving your protective stops in lockstep as your winners continue to win for you. So with that, I wish you a good weekend.

The post Have a plan before you need it first appeared on MartinKronicle.

The post Have a plan before you need it appeared first on MartinKronicle.