EXECUTING A PLANNED METHODOLOGY
Courtesy of David, THE CROSSHAIRS TRADER
My friend and fellow trader Derek Hernquist over at Integrative Capital invited me to attend a meeting last night. The speaker was Chuck Dukas of TRENDadvisor. I won’t discuss here is methodology but instead his understanding of what makes a trader successful, no matter the methodology. With over 25 years of experience trading and working with the most successful traders on the Street I believe what he has to say is right on target. In fact, I would say his wisdom is IN THE CROSSHAIRS. Mr Dukas shared three simple, basic elements for long term trading success and here they are:
1. Develop a solid METHODOLOGY: instead of trading one pattern one day and another the next or trading off pure emotion or what the next guru preaches simply find ONE methodology that has been proven to work over time and stick with it. It is boringly simple and is not for the Las Vegas inclined. According to Dukas it is vitally important that a trader understand the importance of “trading what you see, not what you feel or think.” In other words, a simple, well-thought out trading methodology will trump emotional feelings every time. If the market is bullish then trade accordingly, in spite of feeling or thinking that the market should be bearish. Without a methodology there is nothing but distorted psychology and arrogant hubris. Unless you have enough money to trade your feelings then you best trade a methodology.
2. Have a PLAN on how to trade the METHODOLOGY: it is one thing to have a methodology and quite another to have a planned methodology. Think of it this way: a football team puts together a set of plays, a “methodology” that it will use to take advantage of its opponent’s weaknesses and ultimately win the game. This team will run a particular play within this methodology depending on the circumstances. If it is third down and 20 yards to go, the plan will call for a long pass against a weak defender: not a quarterback sneak up the middle. The same with a trading PLAN. Your pattern, your edge, may be to trade a ten day break-out on above average volume in a trending market thereby taking advantage of bearish weakness and bullish strength. The PLAN is to take a partial position when the break-out occurs and then add to the position when and if the market tests or pulls back showing additional strength. If the PLAN fails a pre-determined stop loss is set. No first down, no profitable trade. But that is the PLAN within the METHODOLOGY.
3. EXECUTE the PLAN based on the METHODOLOGY: what good does it do you to have a well thought out planned methodology yet fail to execute the methodology as planned? You guessed it…worthless. One of my favorite authors, Mark Douglas, writes in his book The Disciplined Trader, “as a trader it is more important to know that you will always follow your rules than it is to make money because whatever money you make, you will inevitably lose back to the market if you can’t follow the rules”(203). Mr Dukas put it this way, “the mentally strong will win EVERY TIME.” EXECUTE your PLAN according the the rules of your METHODOLOGY every time. Period.
Bottom Line: execute your planned methodology or your unplanned methods will lead to your eventual execution.
