Tuesday, June 26, 2018

What We Should Focus On In Our Trading

Here's an important principle:  Your attention operates like a magnifying glass.  We program ourselves with our attention.  What we focus upon, grows within us.  

This is why our self-talk is so important.  If we focus upon our shortcomings and berate ourselves for our mistakes, that is what we internalize.  We recognize this with parenting.  We realize that if we were to focus on every flaw in a child, we would damage their self-esteem.  As I mentioned in a post a while back, we are what we eat--and we're always eating life experience.  Our experiences are what we internalize.  Ultimately they define who were are.

In trading, if we focus on rules and best practices, we make those our own.  As young children, we had to be taught rules of proper behavior, such as thanking people who do good things for us.  Now, as adults, we don't need to consult the rule or motivate ourselves to follow it.  We naturally feel gratitude for good deeds and offer thanks.  The trader who makes rules about risk management or about what constitutes opportunity consistently focuses on those rules and eventually they become internalized principles.  They are no longer simply things to do; they are part of us.

Merritt Black recently reviewed the Principles from Farnam Street and applied those to trading.  One of those principles is that "principles outlive tactics".  A tactic is something we do in response to a particular situation.  A principle is something that guides us across all situations.

Here's a great experiment:  Quickly, write down the principles that guide your trading.  Only give yourself a couple of minutes for the exercise.

If you can't enunciate your principles quickly, they are not an automatic part of you.  It's when principles are front and center that they form the backbone of trading process.  That can only happen when we focus on principles and keep them conscious.

What a great practice for developing traders:  Writing principles on a card and consulting them before trading for preparation, during trading for execution, and after trading for review.  After a month of such repetition, we become more consistent because we become more principled.

Further Reading: