This week in the blog we are going to take a small turn away from the systems talk we have been having recently. I want to do this because of some questions that have been thrown at me recently from some of our members with less experience in the markets, or as we called them the Rookies.

You see, the markets took a little turn south last week and this can do a few things, first, it makes people nervous! Usually, it only makes the folks who are wildly bullish and unprepared for changes in direction nervous. The other thing that tends to happen is that volatility picks up and this also puts a wrench into the plans of newer traders, especially if they have not yet experienced such conditions before. It is not that crazy of a thought to say that people who only started trading in the last couple of years might not have had the opportunity to experience a big jump in volatility and all that comes with that type of event.

This week we are going to talk about the three P’s of panic!

The three P’s pf panic are Perspective, Planning, and Patience. If we think about the three P’s and we understand that markets are always in a state of fluidity then it is much easier to prevent hitting the panic button every time the market decides that it wants to go another way.

So let’s discuss the first P, that is PERSPECTIVE

If one had just felt the effects of volatility last week for the first time and saw their portfolio of cash flowing instruments go haywire or in the case of last week at least fall into the red then their Perspective might be a little warped. If that same individual had been introduced to the VIX and watched it go from 12 to 20 in a matter of days then also their perspective maybe a little off. However, if you look at the futures for the S&P 500 and you see that it moved down less than 3.5%. Then if we expanded our perspective even further we would see that the market does these kinds of moves all the time or more specifically several times in the last calendar with a few larger down moves sprinkled in.

So, as scary as down moves can be for newer traders if we are able to put the movement of the market into perspective then we can see how this first P can pull us back from the jumping on the panic button every time the market sneezes. There is one more thing on perspective: we need to be vigilant in the information we allow into our consciousness as this can also warp our overall perspective, I am specifically referring to all the headlines that flood in when the market starts to turn. This last go-around was attributed to the corona-virus and the impeachment news etc. We need to be aware of the propensity for journalists to use sensationalism to get attention for the news and put this into perspective.

The second P is PLANNING

This one is super important! I will tell you that every time that I fail to have a solid plan in place for a trade I mostly end up regretting it. You see, there is a connection between trading well and living well and by living well I mean keeping stress levels in check. Being that trading is a mental game as we have discussed in this blog on numerous occasions then we need to be mentally sharp all the time and if we haven’t adequately planned out all the possible scenarios for a trade then we are just adding to our base stress levels and this never works out in favor in the long run. Life brings more than enough stress for people that we don’t need to add to it. I find that planning reduces my trading stress level to near zero because I understand from the outset that I will either win or I will lose on the trade and I have come to grips with either possibility and I accept the consequences of either scenario playing out.

As for the stresses of life and how we can affect those, well planning your life out can also be very effective and very successful in the longer term as well. There is one other thing I have been introduced to recently in regards to dealing with stress and I honestly never thought I was one of those guys but I am coming around to the idea of meditation. I never thought that mentally I needed to go to a quiet place and think about what was happening with me, whether that be in trading or life in general. I always thought that I could figure everything out on the fly but recently I have realized that when I take the time to slow down and think through all the outcomes that are possible from any given event that if I concentrate on the outcome I want it usually comes to pass. This is especially true in trading. This second P can also pull us back from pressing that panic button.

Finally, the third P is PATIENCE.

This P is really a virtue! This P is the hardest mentally to deal with in my opinion. It is easy for someone to say just be patient and everything will work out ok, however, to live through an uncomfortable situation is a completely different story altogether. I have heard it said many times that “this too shall pass.” This goes for both good times and bad times equally and it is really is true but it just doesn’t feel like that like most of the time. If we look at this little correction or pullback we just had, it lasted maybe a week depending on perspective but if you were watching your positions or portfolio closely it probably seems a lot longer than that. This has also passed in a short period of time and it is developing this patience to see how things play out that can be your best friend when it comes to trading because hitting that panic button each time this goes against us is not a winning strategy.

So, in closing, I would like to say to all that we need to develop the three P’s so that trading becomes a more pleasurable and rewarding experience and we stay away from that panic button because at the end of the day only those with nerves of steel and a calm demeanor are destined to win!

In the next blog, we will get back into the discussion of the systems and start going through the 4 parts of any system. Until then…

Happy Trading,

Coach Holmes