Sunday, January 2, 2011

The Importance of Sticking to Your Trading Plan

This audio of the Flashcrash of May 6th, 2010 has been floating around the Internet. It is truly remarkable and one of the craziest pieces of audio you will ever hear. The emotions run so deep; you can hear it in his voice. This is a reminder of just how nuts this market can get. 

What was I doing that day? Sticking to my trading plan. My plan said buy.

The buy signals on my systems were triggering all over the place. I had been buying all week, starting May 3. Going into May 6, I was already down on the positions established a couple days earlier.  Then the floor dropped out of the market on Thursday the 6th.  My existing positions were taking huge hits, down 10 - 20 % from my initial buy.  A year ago, I would have sold out ('puked it up', as they say) just to avoid the pain.  This year, I'm (gulp) buying more!  And I initially watched those buys lose big too. It was a crazy day for the portfolio and my emotions, but I'm glad I stuck with my trading plan.  I had to wait until the following week to exit the positions, but most turned out well.

I had established a written trading plan with defined rules. For 2010, I stuck to it about 95% of the time, most importantly during May 2010, which was my biggest month of the year.  Having a plan will allow you to make sound decisions in a time of crisis. There is no guessing; just follow the plan you set out. It won't eliminate your emotions, but it will help you control them.

Below are the trades I initiated the week of the flash crash. When I look at the charts, it is hard for me to believe I even took some of those trades. It's even more impressive that I didn't panic sell either.  (I'm thankful I don't use stops either because I would've been stopped out of everything.)



Ticker
Date
 Price 
Ex. Date
Ex. Price
% Profit
MMR
5/3/2010
        11.27
5/13/2010
        11.59
2.75%
JOE 
5/4/2010
        30.84
5/6/2010
        32.19
4.31%
TGB
5/4/2010
          5.17
5/11/2010
          5.26
1.44%
CLF
5/4/2010
        54.23
5/11/2010
        59.72
10.05%
CAGC
5/4/2010
        15.22
5/11/2010
        14.11
-7.36%
GET
5/4/2010
        28.43
5/11/2010
        26.93
-5.34%
POZN
5/4/2010
          9.87
5/14/2010
          8.87
-10.23%
CENX
5/5/2010
        11.67
5/6/2010
        12.19
4.37%
CRR
5/5/2010
        65.11
5/11/2010
        67.07
2.91%
MTL
5/5/2010
        22.37
5/11/2010
        24.00
7.22%
SWC
5/5/2010
        13.44
5/11/2010
        15.56
15.69%
HTZ
5/5/2010
        12.68
5/11/2010
        12.60
-0.71%
PMI
5/5/2010
          4.38
5/11/2010
          4.38
-0.23%
 QQQQ 
5/6/2010
        46.72
5/12/2010
        48.58
4.77%
TGB
5/5/2010
          4.79
5/12/2010
          5.26
9.70%
PMI
5/6/2010
          4.31
5/11/2010
          4.38
1.39%
DCTH
5/6/2010
        12.54
5/11/2010
        12.88
2.63%
PAL
5/6/2010
          3.83
5/11/2010
          4.11
7.04%
MTL
5/6/2010
        20.99
5/11/2010
        24.00
14.26%
TCK
5/6/2010
        34.53
5/12/2010
        37.54
8.62%
USG
5/6/2010
20.81
5/13/2010
        21.00
0.85%
FSLR
5/6/2010
     127.25
5/13/2010
     129.80
1.93%
MTG
5/6/2010
          9.00
5/13/2010
          9.30
3.22%
URI
5/6/2010
        12.64
5/13/2010
        13.09
3.48%
POWI
5/6/2010
        34.87
5/13/2010
        36.99
5.97%
BZH
5/6/2010
          5.32
5/13/2010
          5.89
10.52%
ATPG
5/6/2010
16.81
5/13/2010
        15.77
-6.26%
LIZ
5/6/2010
          7.61
5/13/2010
          6.90
-9.46%
RDN
5/6/2010
        10.64
5/13/2010
        10.55
-0.94%
DCP
5/6/2010
        16.25
5/18/2010
        17.21
5.81%
CRR
5/7/2010
        62.87
5/11/2010
        67.07
6.57%
ACI
5/7/2010
        22.96
5/11/2010
        25.04
8.95%
MNI
5/7/2010
          4.48
5/11/2010
          5.01
11.59%
DIN
5/7/2010
        31.42
5/12/2010
        32.96
4.80%


1 comments:

Mike said...

Thanks for posting importance of sticking to plan! I want to invest some money in forex trading. But as I am beginner so looking for someone who can give me great advice on this. Do you any suggestion for me?
how to start trading in shares

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