Plan Your Trades And Trade Your Plan

The following is part 3 of our 3-part psychology series. You can read part 1 here and part 2 here.

Clearly our biology and the biases that come with it are hazardous to our financial health.

But how exactly do we solve this problem?

The trick is to plan your trades and trade your plan.

The first step to successful trading is creating a solid strategy that accounts for every possible market scenario. High volatility, low volatility, black swans, it doesn’t matter. Everything should be planned for. Nothing should be a surprise.

A detailed strategy will pre-plan the action steps you’ll take in specific market situations. This ensures you’ll have strict guidelines to follow when your emotions inevitably run wild. Your past objective mind will have already made the correct decisions for your current, emotionally charged, irrational mind. This is how you avoid destructive choices in the heat of the moment.

But this only works if you actually execute your plan when the time comes. This may sound simple. And honestly it is. But that doesn’t mean it’s easy. Execution is difficult because our biological wiring does everything in its power to prevent us from pulling the trigger. Our emotions and biases flare up and we’re forced to do battle with them before all else.

The best trading plan in the world won’t prevent your fight-or-flight response. It won’t cure your dire need to stick with the herd or your cognitive biases either. You’ll still experience all the feelings that come with your biological reality. There’s no way around it.

That’s why you need to accept it. Let the process play out. Feel what you’re feeling. But as it happens, take a step back, and from a distanced view, fully acknowledge what’s occurring. Objectively analyze it:  

“The market just dropped 400 points and I’m feeling x, y, and z. Why am I feeling like this? Should I be feeling this way? How should I react?

Explicitly following through with this exercise, either mentally, or even better by physically writing these questions and answers down, immediately switches your brain from using its emotional amygdala to its rational prefrontal cortex. The process will prevent the type of knee-jerk decisions you’re trying to avoid while reminding you to stick to your pre-defined trading plan.

Another effective tactic to ensure execution is reducing your stimuli. If the market is crashing, don’t sit in front of your computer screen and watch it. Every tick will cause an emotional response. And the more frequently you have to deal with these emotional responses, the more likely you’ll succumb to them and deviate from your trading plan.

Instead, you should resolve to only check the markets at predetermined times. At Macro Ops, we only jump in at the end of the day, after the market has closed. We don’t bother with intraday price swings. They just cause us unnecessary stress and tempt us to deviate from our plan. All entry and exit decisions are made after hours and are pre-scheduled for the following day. We focus exclusively on the closing  price — that’s what matters.

Just like you don’t trust a toddler with a bunch of colored markers in an empty, white-walled room, we don’t trust ourselves with a mouse and keyboard during trading hours. Both result in a mess.

As the legendary trader Peter Brandt said:

“Trading [is] an upstream swim against human emotions.”

These are wise words from a wise man. Plan your trades and trade your plan. That’s how you’ll win in the end.

If you’re interested in learning more about the Macro Ops’ trading plan, then check out our Handbook by clicking here.

 

 

Plan Your Trades And Trade Your Plan

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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.

AK

Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.