Monday, August 17, 2020

How You Learn Shapes How You'll Earn


There's a trader I'm working with who I believe will be a star in the not-too-distant future.  He reviews his trading extensively each day and week, keeps a wealth of statistics about his trading, and often sends his reviews to me and others for suggestions. What I find unique about this trader is that his sole focus has been on improving the consistency of his trading, not the P/L.  He is like a Toyota manufacturing plant, closely examining quality in every part of the process and then pouncing on opportunities for quality improvement.  He derives pleasure from getting better and better and that drives increases in his sizing and risk-taking.

I recently did a video on how to avoid trading on tilt.  It's a big question for so many traders: How do we make sure that emotional disruptions don't color our decision-making and hijack our trading?  It was only after making the video that I realized that I had never seen this trader on tilt.  Yes, he had losing days, and in the past he had some slumps.  But I never saw emotional, reactive trading.  That's when it hit me:  The entire way he had set up his learning process has kept him level-headed.  He is always looking for what he could do better, so missing trades and placing losing trades aren't threats or frustrations.  They are simply fuel for quality improvement.  

When we focus on learning and quality of trading, we take P/L out of the equation, which helps us take our egos out of trading.  Some journals I read are like, "I did this and then I did that. I lost money and next time I need to take my time." It's all about them!  The trader I'm working with spends much more time examining how his stocks moved and how he could better recognize that movement.  He's like a diamond cutter looking at his work, finding small flaws, and then working on reducing those.  It's a focused, intentional process, without much drama at all.

Little wonder, then, that his trading has this same quality.  How we learn shapes how we earn.  Our learning processes shape our mindsets and our priorities.  What we do and how we do it becomes what we internalize.  Without a disciplined, focused learning process, can we truly expect to trade in disciplined, focused ways?