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Top Trading Lessons: Make the Plan, Trade the Plan; Don’t Succumb to Paralysis by Analysis

Top Trading Lessons: Make the Plan, Trade the Plan; Don’t Succumb to Paralysis by Analysis

Christopher Vecchio, CFA, Senior Strategist

Make the Plan, Trade the Plan; Don’t Succumb to Paralysis by Analysis

If you were paying attention, 2019 was a unique year for financial markets: rare has been the occasion that traders had to deal with such heavy-handed, direct commentary from the President of the United States with respect to the Federal Reserve or the performance of equity markets.

Given the scope and scale of some of the comments made by the 45th president, it was easy for traders to overinterpret or underappreciate various words when trying to decipher the true intentions of one of the world’s most influential figures in the global economy. Filtering out the noise to find the signal – the actionable trade – became a more laborious task in 2019 than in years past. For many traders, this was a hapless effort as markets climbed the seemingly endless ‘wall of worry.’

Nevertheless, the traders that were able to successfully navigate the tempestuous market environment were those that were ruthless practitioners of basic risk management principles: cutting losers; letting winners run; and letting risk define position size, not opinions on the latest news and rumors coming from social media. Predictions regarding the return of volatility proved wrong, again, for example.

In this market environment that’s unique like no other, it pays to be objective; it does not pay to be subjective. Looking ahead to 2020, this environment is likely to persist. Traders are best suited by defining the conditions for their various trading strategies, formulating risk management plans, and executing on their trades. Those that subjectively chose when to follow their systems and trade signals are the ones allowing short-term emotions to dictate outcomes – which is never advisable.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail at cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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