What is your plan?
Come on, I'm not messing around here – WHAT is your trading plan? Surely you have one if you are in charge of trading your portfolio, right? If you were a General in the Army and you didn't have a plan – your troops would very likely be screwed. If you were head coach of a football team and you didn't have a plan – your team would likely lose. If you were the CEO of a company and you didn't have a plan – your company would likely do poorly.
These things are obvious and while you know it's a bad idea to perform surgery without a plan or mount a legal defense without a plan – somehow some of you business owners, doctors, lawyers and other professionals who trade the markets think it's OK to trade without a plan. It's not – it's a very bad idea!
On the right are some good trading guidelines but #1, as it should be, is HAVE A TRADING PLAN. And it doesn't mean "Until it Fails" – it's even more important to have a plan to FIX your positions AFTER the first plan fails. Very sadly, a lot of people take 3, 4 and 5 too seriously and hold tight and cross their fingers when faced with a major market sell-off but your plan CANNOT BE waiting until the market recovers. That is not a plan – that is FEAR!
What we need to do, when the market drops, is have a very rational look at our positions – under the new circumstances – and decide if they are still worth keeping in our portfolio and, most importantly, whether or not we have realistic targets for them to recover.
Let's take Boeing (BA) for example. If you owned BA at $350 and watched it fall to $300 but then back to $350 so the next time it hit $300 you weren't worried but then $275 and back to $300 and suddenly $250 but you thought surely it would bounce back from that and then below $200 the same week and now it's too late to do anything about it but cross your…