Making and following a trade plan is one of the most crucial disciplines a trader should master.
Yet many new traders have trouble sticking to their plans…
They make a plan and once they’re in the trade they start reevaluating their idea.
That leads them to make mistakes like selling too soon or taking a loss before their stop is hit, only to have the stock do what they thought…
But there is an even worse consequence to not following your trade plan.
And it will follow you throughout your career unless you fix it now.
Here are my thoughts on when to deviate from your trade plan and the huge cost of deviating from it at the wrong time…
But before I do…I must tell you…
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Should You Deviate From Your Trade Plan?
One thing that frustrates me the most is when traders don’t follow their trading plans — or the ones I hand out daily.
They enter stocks before the signal is hit…
Or they hold a stock way past the goal until it eventually fails.
Even worse — some traders hold a stock past the stop loss!
And in all cases, most of them come to me and whine about how it was a stupid trade idea or a failed trade.
Well, today is your news flash…
Not all trade plans work out. You will have losses. That’s why stop losses are a crucial part of your trading plan.
But what about those times when you’re in a winning trade, but before it hits the goal, it reverses, hits your stop and you get out…
You might start thinking you need to sell into any spike so you can lock in some gains.
Or if you’re in a trade that stops you out of your trade, only to reverse and do what you thought — that might tempt you to start holding a stock through your stop loss next time.
And that’s a slippery slope.
Selling before your goal is hit puts money in your account in the short term…
And holding your position through a stop and ending up with a winner might happen once in a while…
But here’s where it gets tricky…
The biggest consequence of doing either of those things isn’t just developing bad habits.
It’s never knowing if your trade plans work.
How do you know if what you’re doing is working if it’s random?
If you make a plan and change it every time you’re in a trade, why do you even bother to make a plan?
You should do all of your analysis and deliberation before you enter a trade. Then once you’re in it, you own it and your trade plan takes over.
It doesn’t matter what I say, or what another trader says…
You put in the work to make a plan, then you have to trust and have discipline. You can’t blame anyone else for your decisions.
For me, there is only one reason to change your trading plan, and that’s if something changes…
- Macro news hits that changes the market environment.
- Or news hits the stock you’re in.
That’s when you make adjustments. If it’s good news, maybe you sell half your position at your goal and see if it can go higher.
If bad news hits, get out. You can always reevaluate later.
This is the only way to truly be honest with yourself and see the data of whether you’re making effective trading plans.
Now, after you follow your plans on certain setups and you have data — then you can look at your tracking data overall and see if you need to tighten or loosen your stops or goals.
If you want my trade plans daily — get them here.
Or join our free live training sessions to see how you can become more self-sufficient!
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade