This Week’s Battle Plan
Execution
Larry Bossidy, former head of Allied Signal and now head of Honeywell,
has a top-selling book out entitled Execution. In his words,
“execution is the missing link between aspirations and
results.” Even though Bossidy’s book is focused on the
corporation, his philosophy is applicable to every walk of life,
including trading. Today we will look at executing on a daily basis
in the trading world.
My
Dog Ate My Homework
I am very lucky to know many traders. Many good traders and a
few not-so-good traders. The good execute like machines. Miller,
Haggerty, and Lou Borsellino are three who you’ve heard of who come to
mind. They have the strategies in place and they execute. Over and
over again. In the case of Borsellino, he has done it in the S&P
pit for 20 straight years. Executing like a machine, day after
day.
On the not-so-good front, I see the opposite. These are people
who mean well, have the right intentions, but when it comes time to
execute, you hear noise. Lots of static noise. Not on every trade. But
enough times to affect their performance. The lack of focused
discipline that is required to succeed at trading is flawed in them.
I’ll speak with them on days I know they should have made money. But
they didn’t. Why? Lack of execution.
“I knew I should have stayed in the trade but I got out too
soon.”
“No, I didn’t take the trade…the market looked a bit choppy to
me.”
“I was out late last night with my family and I was not prepared
for the opening.”
“My computer broke down…no I don’t have a back-up.”
“My brokerage firm’s order execution froze…no I don’t have a
back-up.”
“I missed the trade because I was looking at something else and
couldn’t pull the trigger in time.”
“Once the stock moved, I froze.”
And the excuses go on and on. The machines (as in long-term money
making machines) wake up and execute the same way day after day, week
after week, month after month, year after year. The others execute
many days correctly, but miss enough days of perfect execution to
kill their edge. And they are scratch traders or worse, which is a
shame. Because they have the strategies that have an edge. It’s
their personal inability to properly execute that kills this edge.
The Checklist
Answer these questions honestly:
1. Are you prepared for the day? This means, before you went to
bed last night, you wrote out all the possible trades for the upcoming
day. This means markets (or stock symbol), entry levels, initial
stops, maximum risk allowed for the day, profit levels and anything
else that is pertinent for you to properly execute your trades.
2. Do you have a backup if your feed goes down?
3. Do you have a backup if your internet connection goes down?
4. Do you have a back-up brokerage account in case you cannot get
through to your broker? Power outages happen, hurricanes happen,
tornadoes happen, earthquakes happen, and even the unthinkable of
planes flying into buildings happen. How much do you have at risk if
you can’t get out of a trade because you don’t have a contingency plan
in place for questions 2, 3 and 4?
5. Are you pulling the trigger on
“every” trade? Or are you finding noise along the way?
Some excuses are good, but most are not. On July 3, I had multiple CVR
buy signals all over the place. The next trading day (July 5) the
market rose over 300 points! Just one problem: I didn’t take the
trade. Too much overnight risk due to the threat of terrorism. Was I
correct in doing this? Was this a good excuse? I don’t know, but it
still eats at me today. The game is for me to take every signal, no
matter what the news is. That’s how I’m supposed to execute. But I
didn’t on that trade. And it cost me big. If that is how you are
supposed to execute, then you take every signal. Period. Then
you won’t have to be second-guessing your decisions four months later.
6. Do you know “exactly” how much you will risk today?
For example, I have a 3.5% maximum intra-day portfolio risk. That’s
the most we can lose for the day if “all’ our stops get hit. Do
you have a risk number?
7. Overnight risk. Have you figured out what is the most you will
risk overnight?
8. Do you have diversification risk figured out? If you are
trading correlated markets or stocks, you’re increasing your risk.
Trading INTC and the SMH’s are basically the same. You’ve really doubled
your risk, not lessened it!
9. Do you change your position size after multiple losses or
multiple gains? Most people do and it’s wrong. And if you are
doing this, you are not properly executing your plan.
10. Do you ever change your rules “just a bit” based upon
your gut? Not based upon your plan…based upon your gut?
11. Do you ever jump into a trade for impulsive reasons? No
real reasons except your gut told you do it or worse, because you read
about it from someone else or heard about it from someone else?
Each of these things will lessen your performance and kill your edge.
As I stated last week, none of this has anything to do with your
strategies. They have to do with execution!
Take the time today and this week to put the above into your trading
on a permanent basis. And let me know if I can help.
Training Modules
Kevin
Haggerty’s 1,2,3 Training Module was just released. Many of you
purchased it and the response has been solid. If you are interested in
ordering it, you still have until tomorrow (Monday) to save 10%. Also,
as I mentioned, we’re bringing out more of these. It’s the best thing
we have done. My Windows strategy, which now
predominates my short-term equity trading, will be released later this
week.
Finale
Strategies are critical. Properly executing these strategies are even
more critical. When you perfectly execute strategies that have a built
in edge, you put yourself in the position to capture a large chunk of
that edge. And that is what trading is all about.
Have a great week trading (and please email
me if you have any questions or need any help with this week’s
topic)!