Unplanned Trades

One of the many benefits of keeping a record of our trades lies in being able to effectively and quickly realise the significant impact of some trades on our performance. This record also allows us to dissect trade management, understanding what is wrong and why.

Sometimes we find ourselves taking random trades that were not previously planned. Deviating from our trading plan is a bad practice easy to fall into. Categorising these trades as gambling helps to understand that they are based on the need to satisfy an emotion rather than following an objective, solid and well-defined strategy.

They are impulsive decisions and taking responsibility and recognising them is crucial to keeping our statistics, performance and confidence in a good place.

The negative impact of unplanned trades

Trading is as much a psychological game as it is about strategy thinking and context analysis. Unplanned trades often come from a lack of impulse control where we act emotionally rather than rationally, leading to hasty decisions. When there is no balance between these psychological factors, it will be common to find ourselves making impulsive decisions that lead to significant losses and emotional distress.

There are a few negative emotions we can quickly identify:

• Fear of missing out (FOMO): The "fear of missing out" leads us to thoughts and feelings that we are missing out on significant opportunities in the market, prompting us to execute trades prematurely or without conducting objective analysis as part of a strategy.
• Overconfidence: Perhaps you have noticed that after a positive streak, you begin to believe you have mastered market movements. At this point, taking unplanned trades becomes very easy because we think the probability of making a mistake is very low.
• Insecurity: Doubt, insecurity and hesitation when entering a trade can cause us to enter too late, affecting the Risk-Reward ratio and impacting performance. This is one of the most significant negative impacts, as its effect is residual and can continue to affect us even when we are doing well.

Awareness of these emotions and accepting them is a significant step. Recognising what we feel before making these hasty decisions will help us maintain control during crucial moments, returning to an objective mindset. We do not want to impact our performance negatively.

We should replace these emotions with kinder thoughts aligned with our goals, and starting by developing a trading plan will help us adjust our expectations.

Good practices to develop a Trading Plan

A good trading plan consists of several elements to define objectives and establish greater clarity for managing trades. Working on certain parameters such as entry-level, stop-loss areas, and profit-taking in advance will help in making informed decisions rather than impulsive ones.

Building this habit has been beneficial on many levels, as it has given me the time to even consider my risk tolerance and make necessary adjustments. We leave behind the anxious thought that we are missing out on opportunities (FOMO) and take a step forward to be prepared for possible scenarios.

Developing a Trading Plan

In this process, we will need to follow a series of steps and use certain tools that will make our lives easier. We could also view this trading plan as a journal where we write out all the key levels we are interested in and our entry and exit strategies for each trade we have in mind.

To develop a trading plan, we take into account technical levels on both high and low timeframes. It can be applied to any market and any asset. There can be as many trading plans as assets you are interested in.

Key points to consider when developing a trading plan:

• Writing out your plan: We cannot begin to develop a plan without a tool to help us organise our ideas. I've adopted Notion as my main organisation platform, but you might also consider other options such as Google Documents or Evernote. The key is the ability to add notes, images and links related to your market analysis to a document. However, if you don't feel comfortable doing this digitally, try writing your plan on paper; it is also effective.
• Market Review: Here we apply the technical analysis. Find the resistances, supports, and key levels in high and low timeframes, and take notes on the prices you are interested in. At this stage, we are "in the zone" and fully focused on doing our analysis. Take your time to understand the market context. I enjoy writing up the context on different time frames such as Daily, 4-hour and 1-hour as I am more interested in day trades.
• Entry and Exit Strategy: Once we have our context, it is time to start looking for the most probable trades and how we will approach them. Write out a plan for long and short positions, and what you would like to see in the market to get into a trade. Where is my invalidation? Where is the best place to take profit? Is my entry a limit or a market order? If we use a market order, we might want to add a note of what we would like to see to execute the trade live in time. Visualise the trade from start to finish, select the strategy you will apply and take your time to review your risk management for each one.
• Review and Adaptation: The best way to follow up on our work is to start setting alarms in these areas of interest. If we are interested in long Bitcoin around the $50.000 level, we might add an alert around fifty dollars higher just to be aware that the price is getting closer to our entry. We have to adapt to the market conditions as it can take time for the price to hit your level. Sometimes it can be executed the day after or at least one or two weeks later. Patience and discipline are key.

Developing a trading plan is crucial for succeeding in trading. It is a process that gives clarity to our daily plan, reduces stress and gradually increases our confidence in trading. A trading plan can also be used for the continuous improvement of our strategies.

The more we practice, the more robust our strategies become, allowing us to refine our trading style and keep only the tools that work best for us. The goal is not just to succeed in the markets, but to do so in a sustainable and emotionally healthy manner.