BarroMetrics Views: Plans That Suit III
In this blog, I’ll look to conclude the overview.
The final aspect of creating plans that suit lies with our decision-making process. Research now shows that while most of use exhibit both types of decision-making processes, one tends to predominate. And the processes are:
The Planner: a la Warren Buffet. She tends to go about trading according to the maximum: ‘plan the trade’, ‘trade the plan’.
The Gut Trader: He tends to trader from his intuition, his ‘feel’ if you will.
What differentiates the Gut Trader from the ill-disciplined is: after the trade, the Gut-Trader will execute his risk-management process –
- check that his ‘intuition’ is not ‘into wishing’
- articulate his exit strategy
- check that his position sizing is appropriate for the trade and capital.
Both the Planner and Gut Trader carry out this process; the only difference is that the Planner carries it out before the trade the and Gut Trader after the trade.
These archetypes are generalizations – we are composites of both. And, although one may predominate, time and circumstance, as well as habit and DNA determine which one we use.
So, the question for us: which type are we for trading? It’s important that our trading plan meshes into this trait.
As an example:
For the most part, I trade the 18-day swing (monthly trend). I pre-plan my trades BUT when I execute, I’ll go with my ‘gut’. One question that has become a habit AFTER entering is: ‘how do I feel about this trade’? If I come up with a negative answer, I’ll seek to examine why – after all my subconscious may be seeing something my conscious mind failed to pick up. Or, my fight, flight or freeze may have been triggered. Either way, it’s important to make an assessment.
As with most things, the more practice we have with the process, the better we’ll get at it. Sure, there will be times, we’ll make the wrong decision – but, that’s no reason to we taking the step.