Sunday, March 02, 2014

Process Control: A Hallmark of Professionalism

Just got back from an interesting visit and tour to the Two Roads craft beer brewery in Stratford, CT.  What struck me from the tour is the degree to which the beermaking process has been automated and tightly controlled.  From the proportions of the ingredients to the amount of time allotted to each process and the several step processes of cleaning the equipment, the manufacturing process is closely mapped and monitored.

This makes the business an interesting combination of creativity--coming up with the right recipes, figuring out the most effective marketing strategies--and science.  Indeed, it is this blend of inspiration and tight process control that makes the brewery successful.

Much trading is like the homebrewing of craft enthusiasts.  There are few controls on the process; each batch is likely to be unique.  While this can make for fun tastings, it is unacceptable when one is offering a quality controlled product to the public.  Once brewing becomes a serious commercial endeavor, it becomes process oriented, even as it retains creative inspiration.

So, too, with trading.  Putting observations together in unique ways and finding ways to trade those perspectives has a bit of creative art to it.  But once the idea comes to life, there is a real science to trade sizing, structuring risk/reward, and constructing a portfolio.  Professional traders differ from others the same way Two Roads differs from the average homebrewer:  the rigor of execution ensures a high level of quality control.

Further Reading:  Reflections on Trading Process