This morning under the grey rainy skies of Paris, I went out with man’s best friend for a coffee. I was excited about writing my plan, remember discipline is the word of the year, so I’m working on it. Discipline. Go to a café, get a coffee, work.
On my mind were the 3 elements that make up this game of trading:
- The Market Itself (or structure)
- The History (or data)
- The Assumptions (future events)
I started drawing pictures, making a type of logic tree starting with the Market (options specifically), knowing how these products work I moved on to the data and created a few lines with indicators like the RSI, VIX, Volume, pricing and Put/Call interest. So far so good, disciplined decisions would be easier as I built up a context, a justification even. Then I started adding boxes and arrows about my assumptions: earnings, press conferences, economic indicators, Bernanke, etc. and how I might rank these assumptions on a 3 point scale. Up, down and flat. I had a few other boxes: conviction, spin, prejudice, personal experience.
The idea is to ask a fixed set of questions before I enter into a trade, to argument a strategy and find the weaknesses.
It’s surprisingly easy to take the first two, and argue almost anything, all you have to do is change the time horizon. On the other hand, my assumptions are much harder to argue against, it’s a habit I’ll have to improve.