Trade The Journey

Trade The Journey

“If” and “Then”

Top of the morning. I’m watching the Bucs vs. Packers game as I write this post. Brady vs. Rodgers should be a classic match-up. If Brady can advance to the Superbowl, he’ll do so without Belichick on the sidelines for the first time in his career. I’m a fan of Tom Brady’s work ethic and strict adherence to his diet.

His diet is all-natural; everything is homemade (cooked by a chef). If I remember correctly, he has dessert once a year. He never waivers from his discipline because he believes it gives him an edge. At 43, I’d venture to say it works.

This week, I found myself wondering how much longer this bull run can continue? Stocks that I own have gone up almost vertically since the downturn in March. I’m getting a bit nervous.

When I think about closing my positions, I think about missing out. What if I close at $50 and there’s another move up to $75?

That can happen. The counter scenario to the stock rising is the stock falling, and as we have all seen, a stock can fall fast. A crash may be quick, but it is not painless.

I hope that you can see, as I see now, that trading is mainly psychological. This may be why most of the posts seem to return to the mental aspect of trading.

I’m working on learning to let go. Ironically, this is the same skill I’m trying to learn in real life. Letting go of the need to control and change the situation’s outcome to my liking is difficult for me.

I’m leaning towards closing the positions I know to be overvalued and keeping the positions open that have a stable long-term future. I plan on keeping most of the positions open in the sustainable energy sector.

If you use excel, you’re probably familiar with the “If/then” function. It’s a formula that states if this variable happens, then complete this action. It’s handy when you are completing projects on Excel.

I try to model my approach to trading in the same manner. If this happens, then I will complete this action. “If” is a keyword because we never know what will happen next.

With the “If” function, we can create different scenarios based on what we see on the charts. If this trend continues or if this trend changes to a non-directional trend, we can formulate hypotheses. I like to identify reference levels for my “If” hypotheses.

I believe that the information is on the charts, and when trading, nothing is more important to me than price. Some prefer indicators, but I like to keep my charts simple and easy to decipher.

Indicators work, but I haven’t spent much time investigating indicators.

I used the RSI and ADX indicators for a short period, but I did not fully understand them, so I stuck to simple moving averages.

Once I have determined my reference levels in which I believe the price may go, I assess each reference level’s potential emotional reaction. Where are my pain points on the chart?

After this, I look to the “Then” function, which is the equation’s action part. This part of the equation is where I require the most work. This reluctance to act goes back to the challenge of letting go mentioned early in this post.

Not only should we consider the act of closing, maintaining, or opening position, but we also have to consider how we will feel after the outcome. Can we accept the results?

Profit, loss, or break-even, can you accept the results without looking back?

One strategy is to center your perspective and actions around risk management. If you form a rule-based on limited losses to 3-5%, everything is a matter of discipline.

Of course, this is just one way to trade. Only by reflecting on your trading will you be able to see what truly works for you.

I did well this past week. Sometimes I run the risk of being too frugal. Life is a continuing exercise in readjusting and change.

I’d like to give myself a grade of a “B” for continued improvement.

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