If you are a disciplined, follow the rules trader, then I am sure you are familiar with the many and various ways the stock market can play tricks on you. For instance, a disciplined, technical trader will adhere to a particular strategy based on current market conditions. In so doing, trades are assessed and entered based on specific criteria, usually by combining mechanical and discretionary means.
Technical traders base their current trade decisions on past price action, noting distinct historical patterns that have the possibility of replication. However, the outcome of two strategically similar trades are never exactly alike if for no other reason than those trading a specific stock now are not the same ones who traded it two months, or even two weeks or two days previous. The elements of uncertainty (e.g., changes in sentiment and differences of opinion) exert such an influence on stock prices that exact replication is impossible. Therefore, the market enjoys a “King Jester” status. (more…)
Traders often hear about the potential benefits of preparing actionable trade plans prior to the next trading day. The goal of such preparation is to make yourself immune to mental edge breakdown. One of the greatest threats to your mental edge is coming across something that’s unexpected during the trading day. Seeing an unexpected price move (especially one you perceive to be a big move) is likely to stress and panic you and therefore cause your psychology to shift into an emotional, reactive state. An effective way to prevent this is to prepare with possibility mapping.