Execution · Decide
The Trade Plan as a Ulysses Pact
Ulysses had himself tied to the mast so he could hear the Sirens and still not steer into the rocks. A written plan is the same idea applied to a position.
Binding your future self
The useful version of a plan is not a forecast. It is a constraint you accept while calm, so that the version of you who is afraid, greedy or embarrassed cannot quietly rewrite it. Jon Elster called this a Ulysses pact: bind the future self’s choices in a cold state to protect against hot-state irrationality.
Markets are reliable producers of hot states. Volatility lifts cortisol. Winning streaks lift testosterone and risk appetite. Watching other people make money creates social pain that can override a correct analysis. The plan exists for those moments.
What goes in it
- Entry trigger — exact, not approximate.
- Thesis — what would have to be true.
- Falsification — what news, price or date proves it wrong.
- Size — percentage of capital at risk, calculated before entry.
- Invalidation level and maximum tolerated loss.
- Primary exit and, where relevant, a time stop.
- How you will judge the process afterwards, not just the P&L.
For a long-term holding the same logic applies in slower motion. The “plan” is the investment thesis memo and the review trigger. Even investors who rarely sell have mental stops: if management does X, or if the competitive position breaks, the position is reviewed properly rather than rationalised.
Why it fails in practice
Two common failures. First, the plan is written and then ignored because nothing enforces it. An intention helps; an intention plus an if-then rule and a record helps more. Second, the plan is rigid in a regime that has genuinely changed. The skill is not only writing the plan. It is knowing when the assumptions that justified it have been materially violated, and having decided that test in advance too.
Stanley Druckenmiller’s 2000 tech purchase is the clean illustration of the first failure. He knew the buying was wrong. He had said so. He bought anyway because he had not pre-committed to staying out, and the pain of watching others profit overrode the analysis. Intelligence was not the missing piece. The pact was.
What to do with this
Take one current holding. Write the falsification condition and the maximum loss you will tolerate before a forced review. If you cannot write them, you do not yet have a plan. You have a hope.