I can’t think of a time in the past several years that has not tested people''s ability to stick with their trading plans as much as during the last two weeks.  There is a true sense of hopelessness out there.  I too, have felt the anxiety and despair that the markets cause when they continue going down so unrelentingly.  But even worse, I received two emails from trading markets readers who stated that they are now out of the game.  They have no money left because they “invested” heavily in the hopes of a market bounce before their accounts went to zero.  Unfortunately, the markets took their accounts to zero before the bounce ever materialized...“just one day too late.”  Furthermore, I trade for a few of my family members accounts who, “have the utmost faith” in my abilities. Two of the three family members--wrote me on the same day, May 24th, asking me, in the nice way that they do, “what is going on with my account?”  These people, of course, don’t follow the markets or their accounts on a daily basis (at least so they say), but the recent market downturn has caused them to become glued to their account balances and CNBC enough for them to write me and “make sure” that I am managing their accounts accordingly.  People are truly nervous.

Meanwhile, I have had an edge during these last two weeks during the market turmoil---you see, I’m on “vacation.”  Right now, I’m writing from the Eden Rock hotel in St. Barths at 1:30am.  I can hear the sound of the water just outside my window.  It is one of the most beautiful and calming places that I have ever been to.  And, not only is it physically beautiful, it is emotionally beautiful as well.  The people are happy and carefree.  There is a aura of freedom, and there is little stress. This environment has helped me to make accurate decisions during this period of market volatility.  Despite lunches on the beach with a TV showing market news from CNN, I have little visual exposure to the despair caused by the markets.  Of course, I have an internet connection in my room, and I religiously interrupt my daily activities to return to my room for the last hour of the market activity.  I am relaxed when I look at my screens because of the tranquility of my surroundings.

I want to stress how important this is.  It is so easy during periods of market unrest and account losses to change your trading style, system, or time frame.  Your rules will save you during these periods.  SAVE YOU!  The most important thing is to not make rash decisions because you saw your account lose 8% in one day.  I’m not saying to not make changes, if you have too much on the table, or if your positions sizes are too big, you should have a plan on how to adjust these positions or your account. But these types of algorithms should already be defined ahead of time.  These are the “what ifs” of your account.  I have plans for the craziest of circumstances.  Plans that I made while I was calm, not during trading hours while the market is going against me.  The market always throws curve balls at you.  Expect them.  Plan for them.  If you haven’t already made plans for margin calls, individual position losses of more than X%, total account losses being more than Y%, and your “uncle point” (the point that you just sell it all and stop for a month)--then you should make these algorithms over this long holiday weekend.  It will help you tremendously.

The reason I am writing this is because despite my tranquil “stress free” environment, and my trading rules and algorithms that I have in place.  I still felt a strong desire to do things “a little” against my already derived plans.  At night when I  go out to dinner with my wife, I talk about the markets and my plans almost as if I am just talking myself into the logical plan that typically governs my every trading decision with ease.  I thought... what if I just take on a bit more risk (so that I can get it all back), or perhaps I could hold on to my positions just one more day (even though my exit point has past) because if I get out the position now I’m still taking a  loss on the trade.  The answer to tempting questions is...NO.  And yes, I too, was thinking this way.  Remember that everyone is thinking this way.  That is why these are the wrong decisions.

Everyone has strong emotions about the markets right now.  So now is especially the time to not listen to your emotions.  Herd mentality is in effect more than ever and to be a successful trader, you must trade against the herd.  It is extremely difficult right now to go against your emotions because they are so strong.  That is why now, more than ever, you must stick to your rules, systems, and plans.  Remember, the key right now is to stay in the game. If you stick to your rules (if they are well designed), you will get through this period, and make it to the next phase, which, as we all know, has typically produced some great returns.  Just stay in the game.

“These are the times that try men’s souls.”....but not if you stick to your plan.

---Thomas Paine

Steven Gabriel