Warrior Trading Blog

Objectivity: Planning Trades the Right Way

I know you’ve heard this a thousand times but I’m gonna say it one more time, leave your emotions out of trading!

Of course this easier said than done because lets face it, real money is on the line and nothing feels worse than losing money or missing out on a big trade, but how can you truly approach the market with an objective mindset?

The answer is simple; preparation. But what is not simple is learning to trust your preparation and executing it without emotion or hesitation. This is one of the hardest concepts for developing traders to overcome.

So how do you overcome this obstacle and improve as a trader?

Plan Trades When the Market is Closed

This may seem like a no-brainer, but you’d be surprised at how many developing traders will formulate a trading plan on the fly when the market is open. This is a big no-no.

There is too much going on and too many distractions for new traders to come up with a detailed trade plan and execute it flawlessly. The best way to do this is to give yourself at least an hour in the morning to review the stocks you want to trade and come up with levels you want to trade off of.

Then come up with different situations and how you would respond to them. For instance, I like writing down if/then statements for different scenarios so I have a plan on what I will do when that happens. We have no idea what the market is going to do so we have to prepare ourselves for different situations and this a good way of doing that.

An example of this would be if I wanted to trade $FB because it is gapping up and there is some good news on it. One of my if/then statements could be:

  • If prices pullback at the open to $XX and hold, then I will get long

OR

  •  If prices rip higher out of the open, then I will look for a consolidation pattern to get long out of

Did any of these scenarios happen and if so how did you respond to it? Did you follow your plan? If not, how come? What caused you to deviate from the plan? Did emotions interfere with my trade plan? These are the type of questions you should be asking yourself when you review your trades.

Be specific and then review your game plan and how it matched up to what actually happened at the end of the day.

Grade Yourself On Your Process Not Your PnL

When you’re first starting off in trading you shouldn’t grade yourself on whether you were profitable or not. Of course we’re getting into trading to make money and you should have a detailed risk management plan, but when you only look at your profit/loss then you are leaving out the most important part and that is how did it happen.

How did I lose or make money? How did I execute the trade versus my plan and how can I improve?

A good practice is to look at your preparation at the end of the day and then grade yourself on how well you executed that plan. Be as specific as possible and make sure to include important levels, if/then statements, stop and profit target levels and premarket conditions.

This will lay the foundation for objective trading and give you a good idea on how you can improve as a trader.

Plan the trade, trade the plan!

Final Thoughts

By creating a  detailed trade plan in the morning and sticking to it you will begin to trade based off what price action is actually doing and not what you think it should be doing in the heat of the moment, thus leaving emotions out of the equation.

Give this a try and let us know if it has improved your trading!

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