How Do You Plan for Gut Feel in Trading?

Adding the Element of Discretion into Your Trading Plan

Gut Feel

Plan the trade and trade the plan goes the old saying. Pretty good advice.

But what happens when you have a gut feeling, an instinct? What do you do?

Well according to the above, you do nothing, you trade the plan and ignore your gut. You hear that inner voice but learn to silence it. Or you throw the plan out of the window and just give in to that feeling… (no no no)

There is a third easier way… Write some gut feel or intuition into your plan. Let me explain with an example:

Let’s say you are long USDJPY. The market rips higher but just shy of your target. Your plan says hold until target or get stopped. But there’s something about the move that feels frothy. It’s run much too quickly for USDJPY and that last candle looks like exhaustion.

The plan says to wait for final targets – so you do. And price rolls right over stopping you out. You felt the turn, but couldn’t act. You’ve learnt not to just succumb to emotions and stick to the plan no matter what. But that gives you no room to operate as a discretionary trader.

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Here's a Possible Solution

Add a rule to your plan that says the following.

“If I get an instinct about price turning whilst I am in a trade, I am allowed to close up to half of the position”

That gives you the ability to stick to your plan yet still act on instinct. You run with this operating system for a while and then review and see if instinct really is serving your performance or not…

The above example was for a trade going your way and closing early but could be applied anywhere.

It’s simple enough to add an element of discretion into your plan that allows you room to make some on the fly decisions without the feeling you are breaking your rules.

Then you can have the best of both worlds.

  1. Stick to the plan
  2. Nurture the discretionary intuitive trader in you

Maybe that’s something you could consider?