Many people these days feel pressure to perform. We don’t believe that we have the luxury of taking our time to patiently learn a profession, like trading. Instead, we must do things quickly. Novice traders, for example, hold themselves up to the impossible ideal of thinking they can develop astute intuition to read the markets overnight. They approach trading like recreational gambling. They believe that trading is simply a matter of placing a bet, throwing the dice, and seeing if you won.
Approaching trading in this manner, however, will usually produce the same results as recreational gambling; the recreational trader loses to the house, which are professional traders in this instance. If you want to trade like a winner, it is vital to take things slow. Take things a step at a time and approach trading methodically.
What is your ideal image of a trader? It is a person who instantly reads the markets, executes a trade, and makes a quick profit? Some traders may trade that way, but most people are better off taking things a little slower. Mark Douglas, in his book “Trading in the Zone,” argues that one of the greatest fears of many traders is missing out on a trading opportunity because they are taking too long to develop a trading plan. A consequence of this fear is that many traders don’t want to approach trading methodically and with discipline. Discipline takes time, and many novice traders follow the old adage, “time is money.” It is vital that you avoid analysis-paralysis, but, on the other hand, if you don’t trade methodically and with discipline, you won’t have a winning edge and you will end up losing.
Trading methodically means making clearly defined trading plans. This process takes time. Rather than think of a trading plan on the spur of the moment, it is useful to carefully write down a trading plan. Study the markets and identify stocks that are likely to increase in price (if going long). Write down the reasons you think the price will increase along with factors that may thwart your plan. What adverse events may influence the stock price? You could try to do all this thinking in your head, but the human mind has limits. It can only process a limited amount of information. If you write it down and see it in black-and-white, you will transform the abstract into specific ideas and plans.
When you make things concrete, you will find it relieves stress and frees up psychological, creative energy. When you write things down, you can examine your plan thoughtfully and see the potential flaws with a third eye, objective perspective. It may take a little time to write it all down, but the added perspective you buy with your effort is worth it. You can look at your plans from a different angle when you write it all down. Another advantage to writing a plan down is that it is easier to follow when you eventually execute it. It is easier to follow a concrete plan than an abstract one. You will know when to enter when to exit, and you will know how to look for signs that your plan has gone awry.
Writing down a trading plan and sticking to it is the winning trader’s secret weapon. If you create detailed trading plans and manage risk, you will increase your chances of success. Don’t think you need to trade by the seat of your pants. Take things slowly. Map out your trading plan and follow it. You will trade more calmly, creatively, and profitably.