As traders, one of the most important questions we can ask ourselves when reviewing our trades is whether we traded according to our plan or not.
Being able to answer that one question will help us identify possible patterns of sabotaging behaviour, and learn how to avoid those behaviours in the future.
There are times in our trading journey, however, when being able to answer that question becomes quite difficult. Sometimes it can hard to know for sure if a trade was taken according to the plan or not.
There have definitely been times in the past when I have said to myself: “It’s all well and good recording whether the trade was plan or non-plan, but sometimes I honestly don’t know, it might have looked good at the time, but in hindsight looked bad”.
It’s obviously really important to be clear on whether a trade was a plan or non-plan trade. When, looking back at a trade, we only really need to ask ourselves one question:
Regardless of whether it was a win or a loss, would I be able to identify this trade as a plan trade in one year’s time?
If it wouldn’t show up in any future back-testing then it’s not a plan trade.
So, if the water has got a bit muddy for you and you are finding it difficult to answer the above question with clarity, it might be worth looking at a couple of possibilities and tweaking things accordingly.
Your trading plan is too vague.
If your trading rules are too wishy-washy, then your trading decisions are going to be based on factors other than what’s in front of you e.g. how you are feeling that day, previous trades, what you think is going to happen. If you can’t answer the question “was that a plan trade?” quickly and decisively, then maybe you need to tighten up your trading rules.
Get really specific about entry, stop and take profit levels. Make life easier for yourself by giving yourself much clearer instructions.
Your trading plan is too complex.
If you find yourself tying yourself in knots considering a multitude of factors, then your plan might have too many conditions. Looking back on your trades, if you start getting brain-ache trying to decide if you traded to your plan, then you might need to simplify your rules.
Simplification does not mean your plan is going to lose effectiveness, often it has the opposite effect. Again, our aim is clarity, ease of execution and ease of knowing whether or not we traded according to our rules.
There is too much noise.
Can you confidently say you traded the way you planned without getting influenced by the noise coming from elsewhere? Do you double-check other people’s opinions on the market before taking a trade? If so, then the increased mental noise caused by forums, social media and newsfeeds might be causing you to second-guess yourself.
You are not trading anyone else’s plan but yours. Experiment with turning off the extra noise when asking yourself if you traded your plan or not.
When we record our trades, it’s really important to know for certain whether we traded according to our plan or not. If it’s hard to know for sure, then the plan needs to be much clearer.
A clear, simple, easily-backtested plan is paramount to improving your trading mindset, increasing your confidence and becoming successful.