Updated: Jan 20
Most of us have heard the phrase, "plan your trade and trade your plan." What does this really mean? To me, it means to have a plan when you enter a trade. This is only half of the equation, though. Most of us have a plan before entering the trade, but sometimes the execution of the plan goes awry. Why is this?
Let’s delve a bit further into why our execution may be the issue in our trading, especially when our plan seems to consistently fall into place, but we are not achieving the results we are looking for.
Execution as defined by Investopedia is, “the filling of a buy or sell order in the market, (with) conditions placed on the order by the end client.” There are specific parameters that have been met by the broker to execute the trade by the end client.
If a broker cannot execute, they will be out of business fast. If we as traders, on the other hand, do not execute, there is no severe ramification, other than losing the trade and moving on. Obviously, in the long term you will go broke. But we tend to think short term, don’t we? This of course, is a huge flaw for a lot of traders. Trading is a journey; it’s a marathon, not a sprint.
Why don’t we, as traders, execute our plan like a broker? I can tell you firsthand: Our emotions get in the way of executing our plan.
Just the other day I was working with a trader, and his plan was excellent. There was a strong move up after opening bell and he was practicing his momentum trades (see Jeff B’s blog on momentum trading titled, "The Mighty Mo" (LINK). His plan was to cut the candlestick in half and put a Limit Order in to clear his stop. Well, the price action seemed to take off a bit, so he jumped on the trade, throwing his plan out the window due to FOMO. He was ‘scurred’ of missing the trade. His trade decided to pull back to his original Limit Order. Instead of getting in the trade with great position, his STOP on the trade was now where his original limit order was! This trade was a perfect example of letting emotion (Fear Of Missing Out) sabotage a great plan with poor execution.
The emotions of trading will lay the best plan to waste if you don’t have confidence in your plan. The execution of this trade was simple. Set it and leave it. The psychology of this trade was not so easy as the trader was fearful of the price moving without him and missing out on the trade.
I truly believe it is nearly impossible to gain confidence in your plan unless you have back tested your plan. Over the next month, keep an eye out for a video and blog on back testing in NinjaTrader. It's super simple to do and you can apply it to your trading.
One thing that has really helped my trading plan, was to look at higher time frames - i.e., 15 min, 60 min, 240 min. It helps me find my setups on a bigger scale and gets me out of the "weeds" in a 5 min or 3 min chart that I typically make my trade executions on.
You can also use Excel to back test, although this manual back testing can be a bit labor intensive, as you are taking the trades on your SIM and tracking them in Excel.
Remember, the Execution of your plan is the final step in your trade and may be the difference in your trading!
Trade well at FNL!