Sunday, June 28, 2015

Solving Your Trading Problems by Finding Your Trading Solutions

In a recent blog for Forbes, I described the essence of a solution-focused approach to trading:  studying your own successes.  As da Vinci's quote suggests, it's not just dry, academic study, but study with desire:  the desire to know what makes you the best you can be.

Here's an interesting observation:  

When I ask traders to tell me what they do wrong in their trading to make them lose money, most can name a variety of mistakes they make.  They talk about chasing trades and getting in at bad levels; they describe sizing positions too large or small; etc.  When I ask traders to tell me what they do best in their trading that leads them to make money, most offer vague generalizations or simply say that they don't make the losing mistakes.

Even more to the point, if I ask most traders to map out a detailed flow chart of their best trading, starting with the gathering of information and generation of ideas to the structuring of trades, management of risk, and the trader's own self-management, in the vast majority of cases it would be a difficult task.  The result would be a sparse flow chart. 

Now imagine that I give that same exercise to an executive at a successful company.  You can rest assured that there would be no problem generating a flow chart describing how raw materials are assembled into a product; how the product is packaged and delivered; how the product is marketed; how sales are tracked; how product changes are made; etc.  

The idiot trader has no sense of process.  It's all seat of the pants and randomness.  The enlightened idiot trader talks about "following my process", but cannot produce a detailed flow chart of what they do and why they do it.  That is because, for the enlightened idiot, process is merely a code word for engaging in some general routines.

Successful businesses don't "follow their process."  Successful businesses understand that they have many interlocking processes, and their quality management tracks both those processes and their successful coordination.  

An important question:  If you started a business in your community and managed it with the same rigor as you apply to your trading, how successful would that business be?   

Consider the expert baseball pitcher watching game films.  He will focus on the mechanics of each phase of his delivery.  He will study his pitch selection and the execution of each kind of pitch.  He will examine his pitching accuracy and the factors responsible for achieving good and poor location.  He will study the best way of pitching to specific batters and exploiting their weaknesses and avoiding their strengths.  That is study with desire:  the desire to dig and dig and dig and understand the drivers of superlative performance.

The idiot trader keeps no journal and has no structure to his or her reflection.  The enlightened idiot trader keeps a journal and writes down all of his or her mistakes and frustrations, but never transforms those observations into concrete goals, plans, and commitments for change.  An expert business knows its best practices, turns those into robust processes, and tracks them religiously.  

As the Forbes article emphasizes, an exclusive focus on what you do wrong will, over time, help you internalize the identity of a wrongdoer.  In studying your successes and turning those into solutions that anchor best practices, you reinforce an inner sense of achievement.  There are no lifetime accomplishments that do not begin with daily achievements.  Many, many times the answers to our trading problems lie in what we're doing when those problems are not occurring.  The first step in becoming a better trader is understanding how we currently trade when we trade at our best.

Further Reading:  Solution-Focused Performance