I'm not quite sure who wrote it so I'll just leave it author-less. I did read this last on Steve Burns's twitter. The first time I read it I had to look at it twice but finally it made sense. It was a huge A-HA moment and one that I will always look back to.
If you are an experienced trader I'm sure you know exactly what this means but as a new trader you may have never truly thought about this one before. Bare with me while I explain this in detail
"Traders must be rigid with their rules"
Seems like an oxymoron when you first read it doesn't it. Take another peak at it. Traders must be rigid with their rules. Let's break this down. As a trader you MUST have a set of rules you follow. These could be rules on how to get into a trade, or on how to sell shares once in profit. Rules on how to stop out of a trade. Even rules on how to scan. The reason we use rules is the same reason an airline pilot uses a checklist before taking off. You want to not have to think about a whole bunch of things and just focus on what is important. If an airline pilot had to think about what speed should i get up to to take off today he would probably crash his airplane more often than not. We don't want to be thinking " oh when should I stop out of this trade vs that one " A set of rules is required for each situation you may encounter and you have to stick to it to the best of abilities. When I am ready to scan I don't debate how I'm going to scan today vs yesterday. I pull up my saved scans and thats it no drama no second guessing. With rules comes freedom believe it or not. If you want to be a successful trader which means you will have freedom to work when you wish, from where you wish and how much you wish you must have these rules in place. What about the second part.?
"Flexible with expectations"
Now here is where it gets fun! What if you have a stock set for a long and you are SURE about it. This is your expectation. You have no doubt (falsely) in your mind. The next day the stock opens below a support and falls hard. You are sooo blinded by your expectation that you wait for any bounce to take it long. The bounce comes in and you load the boat. It moves up a few points and then starts to fail again! You are still blinded by your bias and you hope and pray that this is simply the stock forming a higher low. Much to your susprise it just keeps on falling....and falling and falling. You now can't stand the pain and you stop yourself out. It is perfectly ok to have a plan and an expectation perhaps even a strong bias. However if the stock does something completely against what you predicted you must be flexible and observe what is really going on. Let's look at an example. PRGO
Daily
Yesterday as i was making my daily list for today I had PRGO on watch for a continuation short on a G/R type move. ( green to red) I was quite positive that some kind of short will occur as it had just had a day 1 type move. Well lets see if my bias would've been correct and what i could've done about it
What do you see here? You see a stock that opened green (which is what i wanted) However it opened with strength over the trendline. When a g/r happens according to my RULES ( which are strict) the move green must show weakness. This one showed strength. It moved up to a resistance but then the pullback was WEAK! So I began to switch my bias due to this. This price action told me loud and clear that if i had stuck with my expectation i would be crushed by the market. Once my bias switched that is when I look for the entry in the opposite direction or not at all if I am not comfortable. In this case we see how after the weak pullback and higher low we took right back off and followed the strength over resistance,
So this is what I mean by being flexible with your expectations. You stick to your basic rules and/or checklists but stay on your toes for anything out of the ordinary that may happen. If you expect something to happen and cannot admit that the opposite is actually happening right infront of your eyes , you will never be a successful trader. Read this quote over and over until it really sinks in! Enjoy your night
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