Building Scenarios

Building Scenarios

There are always innumerable probabilities regarding the market’s direction and movement or the
lack of both these. Sometimes they can make large moves and sometimes they wouldn’t buzz for
days. Sometimes they would move in the same directions for weeks and then sometimes they would
change direction several times in a day. One of the interesting characteristics of the markets is that
they never fail to surprise us with their actions and catching us off the guard. Often these surprises
prove to be costly.

Although no one can know for sure market’s next course of action still we can prepare ourselves
to face the surprise. In the evening before the trading day we can imagine about all the possible
scenarios that can play out next day regardless of their actual probability to occur. We can, for
example, imagine the ideal conditions we would like to see before making a long entry or the worst
conditions to make a trade at all. We can imagine about our response to breakout failure or our plan
of action during a short squeeze. It won’t take much time to think of so many other possibilities and
we can do it in our free time like while exercising or during the evening walk etc. Try it if you are not
doing it already and please share your experiences regarding this whole exercise.

Again the markets have their own minds and even after this scenario building exercise they can have
something different in store for us but then if one of our imagined scenarios actually plays out, we
our ready with our plan.

[Contributed by Jitender Yadav]