This Week’s Battle Plan
Staying Out Of Trouble
Two things usually get me into trouble. The first is the occasional
time I stray from my daily plan. As you know, I buy oversold
conditions and sell overbought conditions. I “buy the fear and
sell the greed.” I use more than 20 indicators I have created for
myself that tell me when the odds are stacked in my favor to be long
and when the odds are stacked in my favor to be short. This works fine
for me. When I start straying from it, my results tend to vary. Not
vary to the point of anything too drastic. But the consistency
changes. I have a plan and when I stick with it (which is just about
all the time), I know what to expect. Where I really get myself into
trouble is when I start doing something worse. That
“something” that causes me the most amount of grief is when
I start doing an eight-letter word…it’s when I start thinking!
Huh?
That’s right. I’ll admit it. My brain gets me in trouble. And if I
allow it, it will get me into trouble again this week (more on this in
a second). My brain gets me into trouble when I start deviating far
from the plan and start figuring things out that alters that plan. And
I ask myself how does this happen? I think I have a brain. I did
pretty well in school, I’m pretty quick with numbers, I’ve written a
handful of books on trading, I’ve learned and continue to learn the
game from other successful traders. Hell, I was once the only 9th
grader at Pierce Junior High to get a 100% on Mrs. Martin’s Science
test! How could my brain get me into trouble? Easy.
Look At The Market For The Previous 8
Weeks And The Riches Of The World Will Be Yours
And that’s the mindframe I’m trying to avoid. Because it’s real easy
to say it’s all figured out. Sell the rallies. Yup, that’s it. Just
wait for it to go up 1-2 days and bang those bids. Look how profitable
it has been over the past eight weeks. And it has. And you didn’t have
to wait for big sustained rallies because we’ve had none. Just a day
or two of up-action and get yourself short. And that’s fine for now.
Who knows, maybe it will work for another eight weeks, maybe another
eight decades (it won’t). But, this game will likely end after
one good solid capitulation day that flushes all the longs out. And
flushes out all the money managers who were in last week’s Barron’s
cover story who told us we were going to be above 11,000 at year’s
end. And, then, “banging bids” will be a losing game. So
instead of starting to play the game, instead of telling myself I’ve
got it all figured out, I think I’ll just stick with the same
boring thing I do day after day. I’ll stick with my plan. A plan
that has taken years to develop and does just fine. I’ll let the guys
who are smarter than me do all the thinking.
Working The Plan
“A champion pays an extreme price to be better than everybody
else.”
             Â
-Paul “Bear” Bryant
Putting together and strictly following a plan requires work. And it
requires discipline. But this is what successful people in all walks
of life do. And this includes, business, athletics, trading, and any
other profession in the world.
My plan has 12 parts to it and today I will share four of them with
you:
1. Creating a nightly plan for the upcoming day. I
know the day before what I’m going to do tomorrow. And so does nearly
every successful trader!
For me, it begins with a tops-down approach. The likely market
bias dictates just about everything. I had buy signals near the close
this past Tuesday. I wanted to be long with these signals, not short.
I in no way knew we would rise 300 points on Wednesday. But, I sure as
hell did not want to have short positions going into that day no
matter how bad things looked. MARKETS MOVE STOCKS, not vice versa. And
having a plan that looks at the market bias for the upcoming day is
the best place to start. From there it drills down. Market first,
sectors second, stocks within those sectors third. Then, it’s the
entry levels to enter. Exact prices, not winging it depending upon
what the market brings. And all this is created the day before, not
the day of, trading.
2. Stops on Every Trade. I have a stop in as soon as the trade
is filled. And I know exactly where that stop is because I
attempt to risk the same amount on every trade. No winging it here.
This is as automatic as anything I do.
3. Not Influenced By Outside Factors. It’s easy to be swayed by
the media and the brokerage houses. They sway me too. But this is
usually very short-lived. I don’t want to be a wise-ass about
this, but I very much want them on the opposite side of my trades. I
want them reading stock market obituaries when I have my buy signals
and I want them jumping up and down with excitement when I get my sell
signals. If there is one confirming thing to my indicators, it is
this.
The moment you are not influenced to be moving in the same direction
as CNBC, the rumor chat rooms and the brokerage houses, the closer you
become to being true to your own methodology.
4. Using The Same Strategies Over and Over Again. Stick with
what works for you! And do it over and over again. I talked earlier
about the urge to change the plan and start banging bids in this
market. But I will not do it! Maybe it will make money, maybe it
won’t. That’s not the point. The point is that it has nothing to do
with my plan. And, there is absolutely no evidence that banging bids
will work going forward. Look at what has worked for you best in the
past, make sure it can make money in up and down markets, and make
sure you use stops.Â
Why Do All This?
Because markets that move up 300 points on a Wednesday and then
give most of it back on Thursday and Friday will have little impact on
your mindframe. Instead of chaos blazing through your brain on a
weekend like this, (as I suspect it is for most of Wall Street),
you’ll be indifferent. The market did what it did and you had the plan
to play it within your framework. Again, for me it’s simply buying
oversold conditions and selling overbought conditions. It’s not much
more complicated than this. Maybe my indicators are complicated, but
when you cut right down to what they are doing, they are buying fear
and selling greed. I’m indifferent that we bounced all over the place
last week. I got one very solid edge this week and I played it. For
you, it may be trading high-probability pullbacks like Landry
does. Or, trading like Tim
Truebenbach and looking for the same intermediate-term breakouts
over and over again. Or, daytrading like Don
Miller, who does the same thing over and over again in Q’s. Yes,
it’s boring. But for these gentleman, it’s a business. And, more
importantly, it’s a profitable business.
Cut Right To The Chase…
And ask yourself two questions. If you could only trade one way,
what would it be? Daytrading, Swing Trading or Intermediate term
trading? And then ask yourself what are the two or three very best
strategies you have to trade that style. My guess is the answers are
easy for you. And my guess is you will simplify your trading day
pretty quickly and at the same time become even more profitable, because
you are trading both what you know, and more importantly, what you
love.
Moving On To This Week
We are again nearing oversold conditions. Incredibly, we’ve now gone
eight weeks without once being short-term overbought. The rallies have
been shallow. The key here is to get a capitulation day. Let the
market get flushed out hard, have everyone throw in the towel. It
started a bit on Friday afternoon, but we need one solid sell-off to
really be there. I’ll be a buyer as soon as that happens. Hopefully,
early this week.
Upcoming
Kevin Haggerty’s
workshop is next weekend in Santa Monica. I’ll be there, as will
Dave Floyd. I look forward to meeting you if you are attending. Also,
beginning next weekend, and for the next few weekends, I’ve asked Dan
Chesler to write a column for the site. Dan is a professional trader
who I have known for years. He originally worked for Linda Raschke,
knows the markets inside and out, and will bring to us a classical
technician’s viewpoint of the marketplace. This is the same viewpoint
he applies to his trading everyday. For those of you who trade using
classical technical analysis, I’m sure you will enjoy what Dan has to
say.
Finale
All profitable traders have a plan. And they work that plan day
in and day out. Yes, it’s intellectually stimulating to try to figure
the game out every day and try to believe you can do this over and
over again. But the people who make the most amount of money in the
marketplace (like the specialists), focus on their core competencies
and do the same thing over and over again. They’re boring. Be a
bore!
Have a great week trading, and a Happy Mother’s Day to all our TM
members who are Moms!
Larry
Connors and Brice Wightman
Larry Connors is CEO and
co-founder of TradingMarkets. He is also the author of four books on
trading, including “Street
Smarts,” co-written with Linda Raschke, “Connors
on Advanced Trading Strategies“, and his latest release,
“Trading
Connors VIX Reversals.“
Brice Wightman is a Market
Analyst at TradingMarkets.com.