Monday, February 13, 2017

Pushing Our Trading Boundaries

I had an interesting experience recently.  Until the snowfall of the last few days, I had been doing my jogging outdoors.  It's great exercise, and it is very effective in clearing out the head and starting the day.

With the recent snow, I went back to the treadmill and resumed my jogging.  The great thing about the treadmill is that it continuously measures pulse rate, calories burned, distance traveled, heart rate, and more.  As I replicated my outdoor run on the treadmill, an uncomfortable reality hit me:  I was not coming close to my target heart rate for optimal aerobic benefit.  In simple terms, my outdoor runs were not pushing me nearly hard enough.

That's the great thing about keeping score:  there's far less room for making faulty assumptions about your performance.  In trading, we think we're working hard at improvement when in fact we're not really breaking a sweat: we're not truly pushing ourselves outside our comfort zones.  When I gave a recent talk to the SMB traders, I was asked about patience and discipline and proposed the following exercise:  calculate the median number of trades you've placed each day over the past two months.  Then divide that number by two and limit yourself to that number of trades for the day.  Once you hit that limit, you're done for the day.

Now that is a bit like getting on the treadmill.  We're no longer relying on a subjective intention to trade more selectively; we're keeping score and forcing ourselves to actually *be* more selective.  If you've averaged four trades per day and now can only take two, you've created a situation where you use half your bullets for the day if you take a single marginal, low-quality trade.  Knowing you only have two trades to make during the day forces you to look for the best opportunities and to keep powder dry for possible later opportunities.

When I'm on the treadmill, I can't avoid looking at the screen that tells me if I'm cheating or not.  When you're limiting the number of trades, you can't overtrade and somehow convince yourself that you're working on your game.  There's a saying that talk is cheap, but it's not.  It's quite expensive if it deludes us into thinking we're making progress when in fact we're not making sufficient efforts.  Bella was right to lay into some of the traders, just as I was right to chastise myself and double down on sticking with the treadmill.  If I want to clear my head and get fresh air, great, go for a jog.  But if I want to work out and develop myself, then dammit keep score, track objective reality, and really figure out if I'm truly developing.

It's all about use it or lose it:  if it doesn't grow, it stagnates.  And if we don't break a sweat and push our boundaries, we never truly grow.

Further Reading:  The Greatest Mistake Losing Traders Make