Most struggling traders focus too much on the results they want to achieve in the markets, not the processes that lead to their desired results. But, if you were to ask them, they would probably assert that they do focus on the process.
But if they did, truthfully, they would surely have gotten different results.
So, why is there such a disconnect with reality?
To my mind, the disconnect often comes from a lack of understanding of what it means to be process-focused.
This is what it means to be process-focused:
1. You stop the Holy Grail chase; you stop looking for the perfect entry signal.
These are simply non-existent. I promise you! There are far more important parameters that require your unparalleled attention like:
✔ An unconditional adherence to a risk management plan – it prevents you from blowing up; allows you to let the probabilities work in your favor over enough number of trades; allows to take money off the table when appropriate.
✔ Your mental state – it determines your capacity to adhere to your plan.
When you stop the holy grail chase, what you slowly start to realize is that your biggest edge, in the end, is (and was always) YOU. It’s not outside, it’s inside!
2. You drop the idea that you HAVE to make a certain amount of money this year.
You stop putting so much undue expectations on a process that is out of your hands. You can’t control the markets and make it conform to your every wish, can you? So why do it? Why don’t you instead put all your focus on that which you CAN control?
For instance, the SPX was up around 10% in 2016, yet I closed the year up 3%, only. Does that bother me? Not at all. Why? Because I know that even though I’m down this month, or this year, it doesn’t necessarily say anything about the long-term viability of my system. What matters is that my system wins over a significant number of trades. And I’ve traded it enough to know this, so my focus is entirely on trading it with adherence to every rule that makes the system.
3. Your stop comparing your results to a benchmark.
As said in the previous point, even though the SPX was up 10% in 2016, I am lagging the benchmark. Is it because of trading errors? No, I didn’t make any errors in 2016 – none that I can consciously think of. Is it my system that is flawed? No, the system is sound. Here’s the thing, I was, unfortunately, holding names that didn’t move much. These things just happen — you won’t catch every move all the time. So it makes little sense to measure your results daily, monthly, or even annually. What’s more, it makes little sense to compare your results to a benchmark unless you are ONLY trading that benchmark. What you are to do instead is to compare your performance to itself over the past x number of trades – I’d say 100 trades is a good start but bigger samples are way better as they allow for data saturation. Data saturation occurs when you are no longer seeing new information that may affect your end results. At this point, you have a clear idea (and a reliable reading) of the capabilities of your system and its results.
4. You stop comparing your results to others.
I’m sure you’ve had the experience where you compared yourself and where you are in your journey to another person and subsequently, you felt bad about where you currently stand. Very often, when we focus too much on another’s accomplishments it’s because we tend to focus on the end results that we see.
That’s exactly what I would do at the beginning of my career. I would compare myself to some random traders on forums and social medias. I often found myself thinking:
► “Wow, he’s such a good trader”
► ”Wow, he rode that trade until the end of the trend… how the hell does he do that. I would have cracked under pressure.”
► “Wow, his trading system seems so advanced…Mine is so simple… that must be the reason why I keep losing”.
► And so on.
Here I was comparing myself to a complete stranger, possibly a lunatic who didn’t even trade. Do you see how stupid this is? Yet this is a trap a lot of us fall into.
5. You place your entire focus on trading well, and maybe enjoying yourself along the way.
Doing so WILL give you results, maybe not this month, or this year but over enough number of trades. And this doesn’t only apply to trading, it works with almost anything in life – sex, sports, baking, you name it.
What’s more, what this act of trading free of expectations measures for us is an individual’s motivation. You see, it’s very easy to have a goal, everyone has one. But when it comes to sticking to a process that makes these goals attainable, someone who is only motivated by external settings (money, praises, recognition) just won’t have the staying power. The get-rich-quick prospectors will quickly get weeded out one by one.
My challenge to you
This year, I challenge you to put all your focus on your trading process rather than your goals of making a certain return, or x amount of money.
It is good to have a goal so that you have some understanding of what kind of trading system you need to create and what kind of trading process you need to adhere to to make that goal more likely, but none of us can predict with accuracy whether any of us will reach our goals. And, this is so because reality has so many factors affecting us continuously.
Let’s say you want to make 20% this year, the problem with a goal-oriented thinking is that your subconscious will keep telling you, “you’re not there yet.”
And guess what? This will directly translate into stress, unease, fear, and compulsive behaviors. Not a good way to achieve your goals, is it?
On the other hand, when you focus on the process, you’ll be more likely to think “Well, if I want to make 20% next year, I have to get the process right; I have to focus on doing the right things.”
You see, it’s a completely different mode of thinking. It’s completely different expectations and a completely different way of being. One is crisp, resistant, and fuels compulsive behaviors; the other is strategic, centered and fuels patience and flexibility. Two completely different approaches!
A little analogy
Before I end this post, I want to draw a quick analogy. One of the inevitables of trading is that sometimes you will perform at your best, you will follow your plan, and still you’ll end the year with losses or minimal gains. Pro-swimmers notice this all the time. A typical pro-swimmer might practice a lot, do his best in a race, but then, finish 3rd. If his only goal was to win, the outcome would have been disappointing, but very often what you’ll see is that he will still celebrate. You know why? Because he’s achieved the goal of being faster.
I hope you reflect on this and my only wish for you this year is to realize the importance of your process. If you do, 2017 will be a great year for you, no matter what the markets do.