A written out trading plan is good. Having a written trading plan that you know has an edge is great. Having a written out trading plan with an edge which was backtested is even better. But will such a trading plan (written + backtested + proven edge) be enough to trade successfully?
The above will depend on how that trading plan is executed by the trader as there are other factors that come into play outside of a written out trading plan. With this I mean that there are many factors that can come into play outside of a written out trading plan that can affect a traders’ ability to execute his / her trading plan consistently. The factors I talk about refer more to the psychological component of trading.
Let’s take discipline as an example. If you lack discipline in your trading you might have some problems executing your trading plan, like taking profits too early, entering trades outside of your plan, risking too much and letting others’ opinions influence your trading. This is just a couple of examples of how a lack of discipline can affect your trading negatively, even though you have a proven trading plan.
Some other factors that will influence your trading are:
- Fear of missing out (FOMO)
- Patience
- Emotions like anger, fear and greed for example
- Overconfidence
- Dealing with uncertainty
- Needing to be right all the time
- Ego
What else? There are many others, feel free to add.
The point I’m trying to make is that a traders’ psychology is paramount when it comes to executing his / her trading plan; that a written plan is not enough. That it is most often not the strategy that needs to be changed or tampered with, but rather that the trader needs to work on himself / herself.
Consider also this. Let’s say a trader has problems with discipline, but decides to work on it (his / her discipline) instead of changing the trading strategy. With improved discipline this trader will perform better not only with his / her current strategy but also those strategies that are to come in the future. This is because discipline forms an integral part of the makeup of a successful trader and once cultivated / learnt is useful to have and maintain.
Your edge is not just a written trading plan. Your edge in trading includes the trader, and that is his / her ability to execute a trading plan. And that is where all those psychological factors come in. Instead of trying to improve / tamper / change your trading strategy, work on yourself as a trader rather. The more you work on the psychological part of your trading (the more trading problems you overcome / eliminate / reduce) , the better trader you will become.
Thank you so much for reading this post, hope you enjoyed it. Here, here, here and here are some more posts on trading strategies.
Thanks and Regards,
Trading SOS SOS