Trade Your Plan not Your Belief System

It’s very important to recognize that we all have a belief system already in place, and it can be at odds with what is happening in the rest of the world, and therefore what’s happening in the markets.  We are all individuals and that is a great thing. Variety, as the saying goes, is the spice of life. As individuals we have our own ideas, our own preferences, our own comfort levels; some of us are more outgoing and some are more reserved, some more conservative and some more tolerant, some of us like to make quick decisions, while others like to take their time and get input from others, and we all have our opinions. All these differences make up who we are, which in-turn determines our personal belief system.  It is our belief system which is going to determine both the day to day decisions we make and the longer-term plans we undertake. This individuality that makes you who you are is very powerful. So powerful in fact that even the highest power cannot change it until you decide you want to change it. This fact can either work for, or against a trader or investor. It does not, however, have to.

The best example I can give you would be my own experiences over the past several years. In 2008, despite knowing that it is a characteristic of markets, and commodities in particular, to overshoot and undershoot the most ambitious of targets, I found it ridiculous that crude oil continued to climb above $120 per barrel, then $140, then $160. For some reason it was so offensive to me that I couldn’t participate in it, even though at the time it was one of the main driving forces in the financial and commodity markets. Talk of $250 per barrel oil surfaced and it was a common held belief among less experienced traders that the US Dollar index was going to 50 if not lower. I remember seeing one fellow wearing a cowboy hat on a Sunday morning talk show respond to a question about how the rapid run-up in oil prices was wreaking havoc on the economy and thus driving the U.S. President’s approval ratings down, with a “Well yeah, but they sure love him in oil country in West Texas. Hahaha”.  I realized afterwards that despite how the situation disturbed me at the time, that it was not my job to “feel” anything but to adhere to the “plan”.

In early July of ’09 I knew enough to not get attached to short yen-pair trades when the daily chart told me to exit – buy back shorts — even though the weekly stock indices and yen-pairs had just shifted south the previous Friday.  It didn’t matter what so many U.S. traders were saying about the likelihood of failure of the economic stimulus plan and an impending economic collapse. It was my job to follow the plan, not listen to the opinion of others. Stocks turned higher on a dime on 7/13/09 and the yen pairs went on to make higher highs and blow a lot of traders out along the way. My plan had said to buy the daily close above the hammer on Monthly Pivot Support 2 – no questions asked.               

Over the years it has been hard-wired into me that regardless of the experience of the trader or analyst, talk is talk, and all that matters is the trading plan. Along the way I’ve seen a lot of good traders pull up short with a busted wheel or two because they allowed pre-determined opinions, or outright politics to get in the way of riding the waves, and as always I learned from my own mistakes and the mistakes of others.  Always remember pundits and bloggers get paid by the key-stroke; for traders it’s always the opposite. The world always turns, and the smartest players in my book are the happiest ones. They have confidence in their plan and can separate that from opinion.  They know that the most important divergence to avoid is the conflict between what they think about a condition or occurrence, and what their trading plan is telling them to do.


Jay Norris is the Chief Market Strategist at Clovernest Financial Group and the author of  Mastering the Currency Market, McGraw-Hill, 2009 which is the text book for the intermediate level trading course offered though see: Trading Courses  Jay’s second book Mastering Trade Selection and Management, McGraw-Hill will be in book stores in 2011.  

DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor.  Any charts shown here represent market conditions at a particular point in time. Such conditions may not be replicated in the future. Past performance is not indicative of future results.

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About Jay Norris

Jay Norris is Director of Education at Trading University, has over 30 years of trading experience, and is the best selling author of "Mastering The Currency Market", McGraw-Hill, 2009, and "Mastering Trade Selection and Management", McGraw-Hill, 2011. He has also been published multiple times in Technical Analysis of Stocks & Commodities magazine.

2 Responses to “Trade Your Plan not Your Belief System”

  1. You are right and many times I have been stung in the markets. I am an eternal us$ bull and this has made me not take trades against the us$ many times even when there was a sustained move against the us$. Right now I am re-orienting myself to just trade the signals and nothing else

  2. Nice article Jay, how true of opinions getting in the way of a business decision. Like Olu stated above I was also a permanent US$ bull. There must be a plethora of followers like this who will continually give money away to the markets only because they can’t train their own mind to focus squarely on a trading strategy and plan based 100% on the charts each and every time.