Fail to Plan, Plan to Fail!!

Every Tuesday Chuck releases a new Trader Tip video on YouTube. This week we will discuss: What is the plan of action for each of our biggest risks? What are our top new trade ideas? Where are the entries? Where are the stops? Where are the targets? What are the top markets to focus on for your trading systems for that period? If you fail to plan, you're planning to fail!

You can read the episode transcript below or watch the video that follows.
If you have any questions, please reach out to us. We look forward to being a continued part of your trading education!

Fail to plan and plan to fail. That’s right… if you fail to plan, you are planning to fail. One of my favorite quotes is from Bobby Knight, the famous basketball coach.

Bobby Knight says, “The will to win is highly overrated. In the midst of battle, everyone wants to win. It is the willingness to prepare to win that makes all the difference”

What he’s really saying there is that in the heat of the battle, everybody wants to win, but it’s what you do before the battle begins that prepares you to have success.

This is from General Dwight Eisenhower “In preparing for battle I have always found that plans are useless, but planning is indispensable. The very act of planning prepares us to win, even if the particulars of the plan change on the fly.”​

What he’s saying is when we create a plan, we are actually programming ourselves, we are programming our subconscious mind to have a plan and therefore we can respond in the moment in a way that we’re unable to if we don’t plan.

There are two quotes from Paul Tudor Jones The first quote is:

“There is no holy grail – you have to work harder than everyone else. That is my edge!” and here is the key thing, “You have to perform the financial due diligence with each and every trade”

That means that you have to have a plan for every trade and not just when you put the trade on, but for every step of the way, with the trade until the trade is over.

The other thing that Paul said Is he said “I have never known any trader who has made $100 million dollars or more that did not have a detailed business plan who constantly evaluated its effectiveness”

Today, we’re going to talk about trading plans, and specifically we’re going to talk about the strategy trading plan. The strategy trading plan is your overall trading plan for a given interval of time: could be the day, could be the week, could be the month. The strategy plan lays out your plan of action over a given period. It depends on your timeframe. Every trader has a natural rhythmic timeframe that they trade in. Some people trade intraday, some people trade daily, where they’re in a trade for the day or two, three days. Some people will trade multiple weeks, some people will trade multiple months, some people might trade multiple years, but everybody has a sweet spot for the timeframe they trade, and they might slide up or slide down. But their core timeframe is part of their identity. And this strategic trading plan needs to attach to that identity.

This strategic trading plan lays out your plan of action over a given period of time. It is a tool that you could use to hold yourself accountable. When you do your debriefs, you go back and you evaluate yourself versus your strategic plan. Did you do what you said you were going to do? If not, why not? Did you follow your plan. This plan also lays out your plan of actions before they happen. Then, when they do happen, you are prepared to act.

One of the best books I’ve ever read on trading is the book called Alpha Brain by Steven Kinnear. And when I read Alpha Brain, many of Stephen DeGeneres ideas were totally in alignment with what I believe is important in trading. A lot of the things that we talk about, I talk a lot about that trading is full of paradoxes: What you think you should do, you should actually do the opposite. Many of the conventional methods that are taught by every trading educator and every Trading Coach actually don’t work. You start to see the things that actually do work.

One of the things that he talked about that relates to this whole planning concept is he talked about the concept of cognitive strain, and cognitive ease. Cognitive strain is when we force ourselves to think, to work through scenarios and to go into deep thought about what we should do. Cognitive ease is when we go on cruise control.

We have these things called judgmental heuristics. And what a judgmental heuristic is, what a heuristic is, is it’s like a shortcut. It’s like a cheat code. Your brain is constantly looking for what’s the easy way to do something. And if it identifies an association, a path that it thinks gets you a shortcut, it will encode that in your brain, in your thinking. Whenever that scenario comes up next, you won’t think you’ll just do.

This is why subconscious programming is so important. We need to make sure we’re programmed with the right rules, not the wrong rules. Because if we programmed the wrong rules, our heuristics will be false, and we will rely on neural pathways. We will rely on rules that don’t work. Then we’re going to wonder why our trading doesn’t work.

In this discussion of cognitive strain versus cognitive ease, we want to think. We want to put in work before our trading session starts. The reason is, is that we’re clear headed, we’re of clear mind, the markets not moving around, we have time we could slow things down. When we engage in getting this right, when we engage a cognitive strain up front, then when we get into the trading session, and we feel the inevitable adversity, that we always feel at given points in time, we can put our emotions to the side. We can rely on our plan. 

See, it gets to be a problem when your emotions kick up of fear, or euphoria, or anxiety, or greed, or excitement. When these things kick up, at the same time, you have to make serious decisions. It’s overwhelming. It’s too much.

The conscious mind can hold seven bits of information, basically plus or minus two bits. This is why phone numbers are seven digits, but under stress, the amount of digits that we can hold the amount of pieces of information we can hold in our conscious mind shrink from seven down to five, three, and eventually one. Think about it, have you ever been in a really stressful, stressful situation, maybe got in a big fight their spouse, maybe had a really bad trade on, maybe you are fearful that you are going to have a job review and you’re gonna get laid off. Any situations, all you can do is think about the situation. You can’t think about anything else. It’s just focus on the argument, focus on the review, focus on the bad trade, and in that moment, you can only see one outcome, maybe two, you can’t see a bunch of choices.

Think about it. If you get in high stress, where your ability to hold pieces of information diminishes, at the same time that you need to be doing serious thinking, it’s a recipe for disaster. This plan, we do the work up front. That under stress, we can have cognitive ease, combined with the situation. This allows us to make much better decisions.

When we do this, we also create routines, checklists of the things that we do every single day or every single session to prepare us to write a great plan. This is a repeatable process we can do again and again, we can ingrain it into our neurology. The strategic plan is going to consist of the following elements:

We’re going to inventory any upcoming relevant catalysts. Payrolls reports, earnings reports for stocks, FOMC, things of this nature, we’re going to inventory these along with what the expectations are for them. We know what to expect. We know they’re coming. We know what to expect. A lot of traders forget to do this, and then they put on a position, and I was guilty this couple months ago, I couldn’t believe it. I put on a soybean trade. I set the whole trade up. I really was liking it, it was behaving really well, and then all of a sudden exploded. I said “what is it going on?” Had a major crop report at 11 AM, and I totally missed it. Okay, so this is why this is important. We want to make sure we know what events are out there. We know how they’ll potentially impact our positions, and we want to understand the expectations so we know when they come out. Is the news favorable or unfavorable?

Then we want to take our open positions. We want to rank our risks. How much risk do you have for each position and then rank them from biggest to smallest. Now remember, just because something has the biggest risk doesn’t mean we want to take it off. We may love it, and we’re totally fine with the risk. This is just an exercise though and ranking the risks so we can evaluate each position. Do we want to have this on or not? Is there something better we could put on instead? What is our plan to manage each of these positions? These are all questions you want to be asking yourself.

Then there’s a narrative. I picked this up from Jim Dahl from Market Profile. He encourage traders to write a narrative about expectations for a period. I love that. When we write a narrative, we have to flush out our thoughts when we put them to paper. It makes us think at a deeper level, and what we’ll find is when we commit to a written narrative, we’ll find that we actually don’t understand what we think we want very well. We have to go to a whole nother deeper level, only committed to paper.

Then we’re going to come up with our plan, and this is going to be a list of steps that we’re going to focus on executing during our period, during our session. As we said, what is the plan of action for each of our biggest risks? And then what are our top new trade ideas? Where are the entries? Where the stops? Where are the targets? Having a list of these and then entering the orders for that period. Then what are the top markets to focus on for your trading systems for that period? Remember the trader Tip Tuesday? We did a few weeks ago, we did want to trade Not how to trade, what to trade, not how to trade, what to trade, not how to trade? What are the top markets to focus on? Make sure that we’re focusing on the best markets, so we have a chance to make the most money.

I gave you a lot here, actually, I want you to think about are you writing a plan? Do you have these various elements in your plan, if not get them in there. This has the impact to massively improve your trading. Of all the things that you can do in your trading, this is one of the biggest. If you do this, it will have a significant payoff, especially if you’re consistent over any period of time.

Review, fail to plan, plan to fail. Review these notes, make sure that you are incorporating them into your trading plans and your strategic plans.

With that, stay tuned every Tuesday for additional webinars that I will teach you different ways to think about trading. I won’t waste your time. Each of these will help you improve your trading to be at elite performance level.

We’ve got some upcoming workshops coming up. We have another red pill challenge coming up. We actually have a Market Timing Workshop coming up, which is a phenomenal class where you can actually learn how to time the market. We also have a Five Pillars of Wealth, wealth building workshop coming up. All of these are amazing. Our students just rave about them. So look for these, and I will see you next week. 

Have a great night. God bless!
~Chuck Whitman