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Say you follow the Treasury market, and everything you've read points toward higher prices. Your technical indicators all tell you that the price trend is up, so you put yourself long during a sideways trading range and wait. The market continues to trade sideways as you wait but then retreats on rumors of a large hedge fund selling bonds.
The fact is, rumors will always surface to justify the current short-term trend. And the rumors will range from large players positioning themselves based on their supposedly long-term views to speculation of shifts in government policy. Should you get out or reverse your position? You don't know because if you're like me, you aren't savvy enough to know even if the rumor turns out to be true whether it will change the longer trend of the market, and two, I use technical analysis and so I assume that the trend is up until I see that an important low is violated.
Sure enough, the important low is taken out, and you retreat. An important economic release is two days away and you decide to wait until after the news because the market is always volatile on that economic release date. When the day comes, the news is bullish, but by the day's end, the market is lower. More rumors follow the market's decline, and the market pundits talk about how that was probably the last good news. Perplexed because that's not what your technical indicators are saying, you wait for clearer technical indications before you place another trade.
This situation can be handled by using a mechanical trading plan. Using such a plan removes you from having to sort out the rumors and changing opinions that surround the market. A mechanical trading plan is technical, and a good plan will tell you the trend, entry and risk points, as well as have solid money management rules.
But don't think for a second that a good mechanical plan should be the Holy Grail, because it's not. Even a good plan will have losing trades. But a good plan can be all you need. For example, review any of our articles by Dennis Meyers or February's feature, "The new Gann swing chartist." That article detailed a fine plan authored by New Market Wizard Robert Krausz. That plan, as well as Dennis Meyers' work, meets the criteria that a good mechanical plan should have. Study the plans closely and see if yours has the same features.
As Robert Krausz remarked in his A W.D. Gann Treasure Discovered, "If you have no plan, you'll become part of someone else's." So make your own. Don't be a pawn!
