Anticipate The Worst And Practise A Possible Response

Under what conditions would you like to trade if you had your druthers? You would probably want to trade in a strong bull market, be way ahead so that a loss wouldn't hurt at all, and have a foolproof trading plan. In addition, you would want to have a mental edge. You should be in a good mood, alert, and ready to take action. We can't always trade under such ideal conditions, however. If you are a professional trader, for example, you may need to take advantage of ideal market conditions, even though you had to stay up with a sick child all night. We may need to trade when we aren't at our best, but failure is not a certainty. You come out unscathed if you plan your trade well enough, anticipate adverse events that may thwart your trading plan, and practice a response to deal with the setback gracefully.

When planning a trade, it is essential to specify conditions where you will exit the trade. If you trade by the seat of your pants, you won't be able to react decisively when you are not in an optimal mental state. Planning a trade can make all the difference. After you have outlined a trading plan, you should consider the worst-case scenario. If you are caught off guard, you'll panic. But if you anticipate the worst, and have a plan for coping with it, you will be able to respond gracefully.

Our expectations often control our emotions. When our expectations don't match what actually happens in our lives, we react impulsively. But it is possible to maintain control. If you are caught off-guard, an unexpected setback will throw you off. If you anticipate all possible adverse events, however, you'll stay calmer and you will be ready to take decisive, disciplined action to remedy the situation.

One of the best ways to anticipate and cope with unexpected events is through mental rehearsal. Mental rehearsal consists of pretending an adverse event is occurring while in a safe, quiet place, such as after hours, when no capital is on the line. It's much like making a videotape of a trading scenario and replaying it in your head. For example, close your eyes and imagine executing your trade. Observe the thoughts that go through your mind. Imagine trying to stay objective and unemotional. Next, imagine the worst-case scenario: the price goes down and reaches the point where you planned to exit and take a loss. Imagine how it feels to lose. What thoughts are going through your mind? Depending on your experience, you may tend to feel anxious and afraid, but ideally, you should remain calm, and ready to exit the trade effortlessly. The key to using visualization is to mentally experience a variety of scenarios. Run through the ideal scenario and the dreaded scenario. By replaying the events in your head at your own speed and under your own terms, you can learn to control your emotions, and respond decisively according to your trading plan. When you first replay the movie, you may feel anxiety and apprehension. Your breathing may be heavy and difficult. When this happens, you can "pause" the "video" and practice relaxation exercises. Take deep breaths and relax your muscles. By replacing anxiety with feelings of peace and relaxation, previously stress-inducing events will lose their potency. Through practice, you will soon be able to replay the movie without stopping and without feeling any sense of anxiety or uneasiness. With enough practice, you will be able to respond gracefully and decisively according to your trading plan.

Don't get caught off-guard. Carefully consider what might go wrong. Practice what you might do after hours, so that even when you are not in a peak performance mindset, you will trade according to your trading plan as if you are completely in control.