We are currently in the middle of a pretty powerful downturn in the market. This is a time when it is so helpful to have a plan—ideally one that you have created before the turn of events occurs.
Having a plan that is thought through before it is needed is key. It is your compass to fall back on when trades start going against you. (Or, what to do when they are going well.) Trading plans are not something most traders have, put in writing, or keep current.
One of the keys for your plan is that it considers not only what will happen as the market goes your way and your balance goes up, but also it plans for the worst case–or even if the unthinkable happens.
One trader I work with was recently heavily in crypto. She created a multi-million-dollar account balance in just one year, from a base of about $100k. She was doing remarkably well and wasn’t thinking much about the possible downside.
But, I made sure we had a few discussions about her plan, what was contained in it, and what would happen if the bottom fell out. Honestly, I felt a bit badly bringing up the worst case possibility on more than one occasion. Well the worst case did happen with a portion of her portfolio, and having the plan turned out to be key. She had planned for the possibility of a 90% to even a 100% loss.
When this outcome actually happened, she was prepared and protected, not left dumb-founded.
Because she was prepared for the worst case, she executed her plan and was able to hold onto a good part of the portfolio.
If you don’t have a plan, even if you have just lost a significant part of your portfolio, I suggest creating one now. Check out my quick video on creating a plan. Then, remember to update your plan on a regular basis—best when you are in a neutral space, away from the market. . . not when you are in front of market volatility, for example. Give yourself this edge!