Monday, February 16, 2015

Best Practices in Trading: Developing Trading Rituals

A ritual is something we do that has special meaning and that we perform the same way at the same time.  A family might have its Thanksgiving meal rituals; most religious services are anchored by rituals; we have rituals for such special events as births, weddings, and funerals.  Rituals are more than mere habits--they set time apart to focus us on what is meaningful.  When we enter a ritual, we change modes to participate in the significance of the occasion.

Today's best practice in trading is developing trading rituals.  These are activities that focus us on what is most important in trading.  Reader Yvan Byeajee, an active, full-time trader, has written a book called Paradigm Shift that stresses the importance of organization and preparation for trading success.  Yvan explains that "The book is essentially a statement of the work ethic that is required to make it in this business.  Without it, even the most robust system is doomed to failure.  I strongly believe that this applies to almost anything in life."

Here is the daily work schedule and rituals laid out by Yvan (all times Pacific):

Monday to Friday:

5:30 AM - 5:50 AM:  Read my list of positive affirmations.  (Positive Expectancy Mind + Positive Expectancy Model = Success)

5:50 AM - 6:30 AM:  Breakfast while glancing over market related news

6:30 AM:  Market opens.  Watch how price action unfolds

8:00 AM:  By that time I'm usually done watching the markets.  I am out of any daytrades I took for the day.  I also placed my orders to open any new swing trading ideas and placed my orders to close any existing ones

8:00 AM - 8:30 AM:  I read trading blogs.

8:30 AM - 9:00 AM:  I listen to a trading-related podcast.

9:00 AM - 12:00 N:  I'm usually out during that time period for a run, followed by a 1-hour yoga session.

12:00 N - 1:00 PM:  At that time, I'm back in front of my screen to watch the final hour prior to the market close and I look to close or initiate new positions if there are any.

1:00 PM - 2:00 PM:  I update my trading journal and trading log.  I also save the charts of the setups I took or exited for later review.

2:00 PM - 3:30 PM:  Research and homework for the next trading day (scanning through hundreds of charts, noting possible entries, exits, position sizing, and risk management parameters to minimize decisions during market hours)

9:30 PM - 10:00 PM:  Book:  Trading related lectures.  I will typically read one chapter per day.

10:00 PM - 10:20 PM:  Meditation


9:30 PM - 10:00 PM:  Book:  Trading related lectures.  One chapter as usual.

10:00 PM - 10:20 PM:  Meditation


1:00 PM - 2:30 PM - Read journal, logs, and saved charts.  The goal is not only to learn something about the market's behavior, but also mine:  What I did right, what I did wrong, and where I could have done better.

2:30 PM - 4:00 PM - Backtesting (statistical analysis of previous chart patterns and their occurrences, updating of my positive expectancy model and possible new models.)

9:30 PM - 10:00 PM:  Book:  Trading related lectures.  One chapter.

10:00 PM - 10:20 PM:  Meditation

Yvan explains, "My best practices have evolved over time to fit my needs at the moment, so new traders should expect theirs to do the same.  They should test, modify, and ultimately find something that suits them the best.  Once they have set up a task to perform as part of their routine, they should try their best to stick to it and be done with it within the set time frame.  Every time we participate in a ritual, we are expressing our beliefs, either verbally or implicitly, so we should be focused on the process, one small step at a time, and the results will take care of themselves."

Yvan offers a great example of how he has turned best practices into robust processes.  What strikes me most in his schedule is how much time he *doesn't* spend in front of trading screens.  I think this is very important.  He prepares his trades the night before and conducts extensive homework in the evenings and during weekend hours.  That allows him to use active trading hours to simply execute his plans.  Such planning and time away from screens prevents overtrading and also enables Yvan to work on himself.  Note how he uses reading, affirmations, meditation, and yoga to keep his mind and body in shape.

Your schedule and rituals may differ from Yvan's but the important takeaway--as he points out--is the consistency of your activities.  It is that consistency that turns a valuable practice into a ritual.  I strongly suspect that Yvan's edge in markets comes both from the work he performs daily and weekly and also his ability to turn best practices into daily and weekly rituals.

Further Reading:  Cultivating Winning Habits