My Life My Trade

You might recall that last night I posted my plan for Monday’s trading – it involved getting out of all short positions if ES 919 was breached. Additionally, it involved adding more short positions if ES heads to 908-909 region. This was based on the assumption that my most likely scenario of gap down OR small gap up and then go down, plays out.

However, the overnight reversal in ES from being down 8 points at one point to being up several points made it clear that no big down move was coming. At the same time, there was hardly any upside pressure – so it suggested a range trading day for Monday. So, the plan was to get rid of shorts at low end of the range and get into new short positions at the high end of the range, which is what I did. In general, one must plan for all four scenarios (at the very least)

• trend up
• trend down
• ranging day with down first and then up
• ranging day with up first and then down

This is something that should be obvious, but a lot of new traders (myself included) would forget. Till few months back, I would just plan for one scenario which was largely dictated by my portfolio and when that wouldn’t play out, then I would do some stupid moves in panic – be it due to fear or due to greed. Then, some one (I think it was Pike Trader at TK’s blog) asked me what my plan was if the market did not gap down and instead spiked up and kept going up.

Yes, when you are massively short, just the mere thought of a market ramping up and only up is very painful. But it is best if I bear this pain today in the evening – this would mean much less financial pain for me tomorrow if that ramp up scenario indeed plays out. I have two choices:

• I can either deny the possibility of a ramp up and then get taken to the cleaners tomorrow if it indeed ramps up.
• Or I can live/walk through a possible ramp up today itself and plan out what I would do if faced with that scenario – this is what makes or breaks your account.