Scenario Planning for Elite Performance

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Today we're going to talk about how you can do scenario planning and how you can mentally program your subconscious mind for success in your trading. Recently, I read a book called greatness by Dr. David Cook and Dr. David Cook is one of the most prominent sports psychologists in the world. He was the team psychologist for the San Antonio Spurs for multiple NBA championships. He has been the personal performance coach for several successful PGA golfers, Olympic gold medalists, NCAA national champions and in this book, he talks about the four pillars of greatness. Today, his experience in working with elite athletes and all the research that he's done, what it takes to be elite, and he lays out this book, it's a small book, you can only get it in hardcover. I put the link here for you so if you want to buy it, you can. It's $100, but it is worth it. One of the things I loved about this book is it affirmed many of the principles that I actually learned from Dr. Van Tharp years ago, that I implemented in my own trading, and in my training and building of trading teams, and working with trading clients. Now in there he spends a lot of time talking about scenario planning. Scenario planning is something that we preach about when we work with traders. Today, I'm gonna go through scenario planning with you in some detail, and you'll find this to be a useful roadmap.

So when we look at scenario planning, scenario planning is going to consist of the following elements: Emotions at the time of the trade, worst case scenario, best case scenario, annoying case scenario, and the likely scenario or the Visualize scenario. Let's talk about the worst case scenario. The worst case scenario is what is the worst case scenario for your position over your period? Could be for the day, it could be for the week, it could be for the hour, depending on the timeframe you are, what is the worst thing that could happen to you? A lot of you say, if I get stopped out. Really? Is that the worst thing that could happen that you get stopped out? No, your worst case is a lot worse than that. Your worst case is there's a terrorist attack while you're in your position. Your worst case is the central bank raises short term interest rates or unlocks the PEG and your currency pair massively runs against you and you can't get out. So what is the worst case scenario? One of the things I find is if you cannot visualize the worst case scenario, then you're in trouble, because it's going to get you, so force yourself to think it through. Our mind doesn't like to think about this, because usually it means losing a lot of money and we don't want to go there.

You need to go there. As you do, one rule of thumb we use a two ATR daily GAAP against your position. The market gap two ATR is against you, immediately, how much would you lose? If you look at that number, and it makes you want to go puke in the trashcan, it tells you you need to do something about your risk. Once we come up with this number, then what action will you take? Will you get out? When you get out of some of the position where you wait and try and get back out better? What is your plan? Once you identify this plan, you're going to visualize you having a worst case scenario happen and you're gonna visualize yourself executing the plan that you laid out.

Then we move on to the best case scenario. People will think about the worst case, they don't think about the best case. The best case scenario is the one I find people don't even think about. They don't see the trade working, and they're good about that, but they don't see something amazing happening to them. Like the same kind of scenario. You can be sure s&p is when a terrorist attack happens and bam, you have a windfall profit on your hands. What is the best case scenario over your period? Then we can use the same daily two average true range gap is a test but we can actually put it in our favor. How much money do we make and if this happens, what action will you take? Will you get out? Will you take some of the position off, will you hold it and write it, will you hedge it with options, what strategy would you use, thinking this through?

We move on to the Annoying case scenario. The Annoying case scenario is something that's not the worst case, but it's annoying. It's something you didn't expect. It's something that happens and it throws you off your game, even though it's not really a huge, huge deal. Annoying scenarios can be the worst because you're not prepared for them. When they occur, they can throw you off balance psychologically and negatively impact your trading for a period of time. That happens, you get pissed off, that happens and then you're so angry that now you're not rationally thinking about your trading and you miss trades, you miss manage trades, and then you just get more and more angry. Through my career, I've had issues with anger, rage and I always found it was the annoying scenarios that set me off into anger and rage, not the worst case. When the worst case scenario happens, there's no choice. You got to go to work. You got to deal with it, but the annoying case scenarios, they can drive you crazy. What are they? Here's some examples, your internet could go down, your training platform could go down. It could be a family issues where you're in a fight with your spouse, or the kids are making all kinds of noise, you could be sick. You can make a list of various annoying scenarios, and visualize your behavior if they were to happen. If the kids are going crazy, and you just want to go up and scream at them, what could you do instead? Could you put your headphones on? Could you check your orders and walk away from the screen and go for a walk? Can you walk upstairs and quietly tell them to be quiet? Calmly tell them to be quiet? Visualizes this.

Lastly, we want to visualize the moment right before you place your big winning trade. If you have a trade idea, I want you to visualize and it's gonna happen two ways. This could happen if you have a trading plan and now the trade is setting up, or it could happen where you're day trading or something in the setup emerges. What you're going to do is you're going to visualize the setup. You're going to visualize when you see it, you're going to be aware of any emotions you feel. Do you feel anxiety? Do you feel excitement? Do you feel reluctance and then you're going to see yourself placing the trade. Placing your stop placing your targets, placing your peel, putting everything on. Then you're going to see the trade unfold and then you're gonna visualize how you managed the trade. Did you peel the trade? How did you exit? Did you sell high? Did you sell low on the market breaking? What kind of retracements did you have to sit through? Did it go straight up or did it go up and come back? Go up and come back? Go up and come back? Did it go up right away or did you have to wait a while? Were there any economic numbers that came out while you're in the trade? What decisions did you need to make as a result of that economic number? Did you take the trade through the close? Was it a weekday or was it a weekend? How long was your market closed before it opens in the next session? Did you need to peel or hedge at the end of the day? How much? How much did you peel or how much did you hedge? If you had what strategy did you choose and why? Did you do an option strategy? Which option strategy did you do? Did you buy Vol? Did you sell Vol? Did you do spreads? What strikes did you pick? What expirations did you pick? You visualize all of this being played out?

Now it sounds like a lot and I think, in some respects, it is. It will take a little bit of time, but this time is so well worth it because if you go through all these scenarios, you do the worst case, you do the best case, you do the annoying case and then you go through the unfolding of your trade. You'll have prepared yourself, you'll have programmed your subconscious mind. You'll have prepared yourself to trust your intuition because you're fully programmed. I want you to understand that if you follow these steps consistently, you will be the 0.1% of all traders, not the 1% of all traders, the 0.1%. I have trained so many successful traders. I have so many friends, some of my friends are literally some of the greatest traders in the world, elite. I know what elite looks like and I'm telling you, even with some of these people who are amazing, they don't do this, but I know a handful people who do do it and they are famous. They are wealthy beyond belief.

You have to go through some strain, you have to go through some work, but if you knew that you could be the 0.1% of all traders, what would that mean to you? What would that mean? Do you want to be elite or not? These are the kinds of things you do to be elite. That's why we have Trader Tip Tuesday, every Tuesday I come to you with techniques like this, that help you take your trading performance to an elite level. I hope you have an amazing week. God bless. I'll see you next week. Bye.