Trading plan and why we dont follow it?

“By failing to prepare, you prepare to fail” – Benjamin Franklin
“Give me six hours to chop down a tree and I will spend 1st four sharpening the axe” – Abraham Lincoln

We all know the importance of Trading plan and many of us already have a well-defined trading plan. But, why do we fail to follow it? Have you ever thought about it?

This is a quick blogpost elucidating the reasons behind that phenomenon.

1. We don’t even have a trading plan. So, what to follow? ?

2. We are not trading the market or time frame for our personality and risk tolerance

3. We take too much risk for our account size and P/L swings screw up our mind – We are not Indiana Jones and risky traders don’t go home with Gold ?

4. Performance pressure, increased personal expenses and undue expectations make us focus on P/L instead of our trading plan – When we are too focused on making money, we start using our ego to trade instead of our plan

5. Impulsive personalities get stressed easily in pressure situations and we have that trait.

6. We just had a string of winning trades and overconfidence took over. System traders take discretionary (not so harmful) trades and eventually get burned. This is also not following the trading plan (as it is outside of our well-defined trading plan)

7. Not tested the plan(strategy) long enough to understand series of losses and drawdown cycles – stop following the plan as a consequence

8. Making excuses for our losses – Excuses lead to change of trading plan after trade has gone to red.

9. We get distracted easily due to boredom and put on a trade (for the heck of it) just to beat boredom.

10. Trading instrument moves 2% without us (actually, there is no trade according to our system) but FOMO kicks in and we enter at random point to just be in that moving train

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