“Plan the trade, and trade the plan!” is perhaps the most common advice given to traders. As far as advice goes, it’s well meaning, but unfortunately falls well short of addressing the problem most traders actually face. 

 

Looking at the advice, it has two parts. The first part says you need a plan. No argument there. But the second part, about executing the plan, that’s when the problems arise. Why?

 

The two parts to the advice, ‘plan the trade’ and the ‘trade the plan’, involve two very different skill sets. Without understanding the different skills required, it’s highly likely that you will continue to regularly veer from your plan.

 

Here’s the disconnect. Planning the trade depends on your intellect (prefrontal cortex, the area directly behind your forehead) And most of the time, the development of the plan does not occur in the heat of battle. 

 

It’s relatively easy to let your intellect guide you, to be the primary driver when you’re not in the heat of battle. But in the heat of battle, when we have to decide right now whether to enter or exit, add or trim, an entirely different situation occurs.

 

At the time of execution, no longer are we cool, calm, and collected. At this point, other areas of the brain come online more (they were online before but now they are even more so). It happens without us realizing it for the most part. This is why developing self-awareness is such an important factor in trading “discipline”.

 

Our feelings about our P&L, our feelings about our performance, or concerns about how we appear in the eyes of others, etc. Lots of different things all of sudden, and they become louder in your head compared to the ‘plan’ you created. 

 

And no matter how smart you are, how much you believe you are not an ’emotional person’, modern brain science is telling us emotions, including subconscious emotions become intertwined with our judgment and decision making, especially when experiencing stress.   Viewed this way, you can see why the typical advice to ‘plan the trade and trade the plan’ may be nice advice, but it is actually ineffective.

 

Perhaps to make matters worse, the typical advice goes a bit further. “To stick to your plan you just need to be ‘more patient’, or ‘more disciplined’. But no one tells you how to become more patient or more disciplined.

 

The way you do that is two-fold.

 

One, by developing a type of self-awareness that helps you understand why you’re tempted to do something. With enough of the right type of self-awareness, eventually you come to a greater understanding of your motivations.

 

With this self-awareness, you begin to develop a resilience, an increased ability to to tolerate discomfort in all the ways it shows up in trading (waiting, missing out, taking a loss, managing a winner, etc).