Monday, June 24, 2019

Three Tough Questions Traders Need To Ask Themselves

I work with traders who do a great job of tracking their most recent trades and figuring out what they did right and wrong each day.  What they don't do as well is ask the big questions.  It is like a company that gets better and better at manufacturing their product, but fails to look at the bigger picture of supply/demand for that product.  It doesn't help to get better at making manual typewriters or flip phones when those are becoming extinct.  No amount of focus on tactics can substitute for effective strategy.

Here are three sets of questions traders need to ask themselves periodically:

1)  Is what I'm doing truly unique, or am I simply part of the consensus?  What, specifically, in my trading approach and process is different from what the herd is doing and how, specifically, is that giving me an edge?

These are questions every business needs to ask.  Why should you succeed?  What makes you different and better?  How do you know that you have a genuine edge?  There are many "me too" businesses and many "me too" traders.  It is difficult to think of highly successful business or traders who are playing the same game as their competitors, the same way.  

2)  How am I building my business?  What am I researching and developing today that will help provide tomorrow's profits?  How am I actively adapting to market conditions to find new sources of edge?

Many traders spend all their time trading and very little time developing new frameworks for exploiting financial markets.  They are like businesses that keep churning out a product or service, never adapting to the changing needs and desires of consumers.  Look at the great technology businesses, retailers, and pharma firms.  All heavily invest in research, development, and technology and all have a pipelines of innovations.

3)  How, specifically, does my lifestyle provide me with an edge in this peak performance activity of trading?  What do I do each day to maximize my energy, focus, wellness, and emotional well-being?  How do my review processes actively create new goals and learning for the future, so that I am always growing?  If I saw a professional athlete with my lifestyle, would I expect him/her to succeed?

One dynamic I've emphasized over the years is that performance professionals are always training.  They spend more time preparing to win than actually participating in formal competition.  Can we expect ourselves to be disciplined in trading if we lead undisciplined lives?  Can we expect to maximize our focus in trading if we are continually distracted by our phones, televisions, and chats?  Our time outside of trading is our training for trading, by design and by default.

The above questions make a great backbone for a trading business plan.  Yes, it helps to review trading each day, but it's the overarching plan and vision that keeps us energized and inspired.  As the old saying goes, failure to plan can amount to planning to fail.  We're not likely to reach any distant destination if we don't have a map and travel plan.  Writing out your plan can be a solid grounding that aligns your daily efforts with your larger life goals.

Further Reading: