A Great Trading Psychology Exercise For This Market

Here's a excellent use of a while this weekend:

Get sleep.  Get exercise.  Get sunshine.  Get connected with the people who matter to you.  Reach out to help and encourage those you care about.  Reach out to those you love and trust for help and encouragement.  Get your life--your well-being--in order.

Then, and best then:

Review your trading from the start of this volatile downturn.  Calculate your P/L during this period.  Ask yourself the question:  Did you perform well given the opportunities (and risks) afforded by the market?

Find the one biggest mistake you've made during this period and cement a plan to identify in real time when it is occurring again, so that you can avoid going down that path.  One technique that I've found especially helpful in that regard is creating a simple checklist of all the things you do when you're not trading well, including mindset, market biases, chasing moves, etc.  Before placing any trade, you need to mentally review that checklist and make sure you can honestly check all the boxes to actively identify that you are *not* making those mistakes here and now.  That "to-don't" checklist is a tool to inject mindfulness and self-awareness in your decision-making and actions.

Then find the one thing you've done best during this period.  Find the kind of opportunity you've been best able to identify and exploit.  Examine your best trades and create a list of what you've done well on those.  Those "best practices" can feed a second, "to-do" checklist.  Just as you need to quickly, mindfully review your "to-don'ts", it's important to be aware that you are checking all the boxes of the "to-do's".  These are short checklists and should not take much time to review.  But, repeated over time, those reviews cement in your head what you need to be doing--and not doing--to succeed going forward.

I've studied past markets when we've had major, broad declines.  Those include the markets post 1929, the large bear markets of 1972-1974 and 1976-1982, as well as more recent declines that began in 2000 and 2007.  In the great, great majority of cases, even after there has been a momentum washout of declines, there has been continued volatility and sharp moves in both directions, often as part of bottoming processes.  The bottom line from those studies is that there have been great trading opportunities following those oversold times, not always great investing opportunities.  Finding the patterns that work in these volatile markets, and "playbooking" them, as Mike Bellafiore describes, is helpful in structuring your risk taking.

We can't change the past, but we *can* learn from it.  The bulk of the opportunity set lies ahead of us.  Let's use the past to prepare for the future!

Further Reading:

A Powerful Psychological Strategy For These Uncertain Times

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