Focus on process

Focus on process, focus on process, focus on process – John Locke

It can’t get any clearer than that, can’t it?  If you haven’t seen John Locke’s weekly webinar on Feb. 19^th, please do.  Your portfolio will thank you.  I got a lot out of it and think you will too.  Here’s the gist of the webinar with some additional thoughts.

There are good traders and bad traders.  What separates the two?  Let’s see.

Bad traders:

• Eye their P&L on a daily, hourly or even by minute by minute basis
• Don’t have a plan
• If they do have a plan, they allow their emotions to take over
• Regarding back testing they may say: “Don’t have the time”
• Internal dialogue: “This time I gotta be right!”
• Follow newsletters, CNBC, etc for their trading decisions
• Jump from webinar, seminar, “guru” looking for the holy grail trade
• Wishy washy
• More prone to shoot from the hip when making a decision. Here’s an example from the 2015 Miss Universe pageant.  Read the card right next time, buddy (ok, it’s a stretch but I had to show this somehow in the blog)

Good traders:

• Have a plan before entering the trade
• Develop & redevelop the plan through hours and hours of back testing
• Redefine the plan to fit their personality
• Follow the plan from start to finish
• Focus on the process of the trade rather than P&L
• Get their rush not from trading but from things outside the market place
• Eat, exercise and sleep well
• Are just better looking. Facts are facts.

The list could go on and on, but I’m sure you get the point.  Reading through this, you may ask yourself where do you stand?  I asked myself the same thing and here’s my answer:

I find myself with one foot on each side of the fence:

The good: I am finally feeling more comfortable placing adjusting trades at the end of the day instead of adjusting my positions throughout the day.  My plan says to adjust my trades at 1 hour to close, which I am finally following thanks to some of David Heinzen’s help.  Thanks, Dave.

The bad: I still stare at my P&L.  It is for that reason that I am having a hard time putting on sizable Bearish Butterflies, but I know it will come as back testing is really showing me the merits of the trade.

The Ugly: The ugly truth is it’s a campaign.  We know that, but it’s worth reminding ourselves.  Overall, our trading P&L will be much higher at the end of the year if we focus on the plan rather than our monthly P&L results.  That’s easier said than done, but then again, being successful in the most competitive game in the world is not supposed to be easy.

If you want easy, then just wing it.  This is what happens (complements of Animal House):

Do I have any suggestions that may help any of the new traders out there?  Focus on process.  To do that, you need a plan.  To get your plan, you need to back test.  Rinse and repeat.  See the pattern here?  And who said trading isn’t sexy?

Here’s a helpful hint, which I picked up from SLIM at tastytrade.  He says to give yourself a stone at the end of each month if you truly follow your plan.  If you have twelve stones by year’s end, your P&L will take care of itself.  I’ve chosen little rocks, which I place on my window sill.  There’s just one rock sitting there right now, but as I write we are still in February.  Even though the rock represents a losing P&L month, I’m happy because I stuck to my plan.  To go even further, I asked my wife to ask me whenever she wanted to know how we were doing in the market, (translation: can we still eat and buy clothes for the kids?) to try something a little subtler.  I said: “Just ask me if I am following my plan.  If I’m not, then worry.”

For those who are new, there’s another point that needs emphasizing as it took me some time to learn.  Find a plan and make it your own.  You cannot just follow someone else’s trading strategy blindly.  That will never work.  Matter of fact, the creator of the Turtle Traders (Richard Dennis) back in the 1980s said: “I always say you could publish trading rules in the newspaper and no one would follow them.  The key is consistency and discipline.  Almost anybody can make up a list of rules that are 80 percent as good as what we taught people.  What they couldn’t do is give them the confidence to stick to those rules even when things are going bad.”

Good luck and start collecting some stones!

Written and contributed by John Wilson