Last update: August 2021
Today we continue our carefully crafted tale on how to perfect your process. Last week we highlighted the phrase, “be process-oriented, not results-oriented.” If you’ve fully bought into the idea that your process reigns supreme, it’s time to move to the next step. Namely, how do you perfect your process? Which, of course, necessitates tackling the query of whether or not perfection is even possible.
To be clear, when I say “process” I mean a trading system or trading plan. That beautiful edifice you built that houses all of your trading rules.
First, let’s all get on the same page as to what we mean when we say “perfect.” Does perfecting your process mean creating a trading system that delivers daily gains to your doorstep with nary a loss?
No.
If your standard of perfection is a set of rules that never loses, prepare to be disappointed. All trading systems stumble upon losses sooner or later so best get used to it now. Otherwise, you’re fighting the unwinnable fight.
So if a perfect system isn’t one that always wins, then what is it? Here’s how I would define it in list form. We’re going old school, so there’s no ambiguity.
- First, a perfect system is one that has zero chance of blowing up my account. In pro-speak that means my risk of ruin is nil.
- Second, and this is related to the first, a perfect system is one where my bet size is small enough such that I can survive any and all losing streaks with financial and emotional capital intact.
- Third, a perfect system is one that generates profits over time. This, friends, is the ultimate no-duh. In pro-speak that means my expectancy is positive.
- Fourth, a perfect system is one that eradicates discretion with prejudice. That is, it maps out all potential outcomes and your behavior during each episode. Your actions are rarely (if ever) left up to your feelings of the moment.
- Fifth, a perfect system effectively does one of the following: maximize gains/minimizes losses, or generates a high return on time invested.
- Sixth, a perfect system possesses a sick name like “The Crusher” or “The Magician” or “The Phoenix.” Without a proper name, it’s a could-have-been perfect system. Don’t screw this one up!
It’s important to remember that trading systems evolve over time as your knowledge, skill, and experience build. Step one is to educate yourself on the different strategies available in the marketplace. Step one and a half is to pick one that calls to you. It could be stock, options, futures, or Forex. Step two is to begin designing your system, the set of rules that will define your process. Step three is to backtest your system. How would it have fared in the past? Step four is to forward test your baby. Practice trade to see how she fares in the real world. If her performance passes muster, then it’s time to kick her out of the nest. Step five involves live trading while reviewing and journaling your system along the way to keep tabs on its performance.
Final Thoughts: My list of six characteristics of a perfect system is by no means comprehensive. I suspect I could have articulated a few more of note. What about you? Are there any others you would have added? If so, don’t be a greedy goon, a selfish shmuck. Share with the class, and we’ll send good fortune to the gods above on your behalf.
Tackle Trading Resources on Backtesting
Why backtesting? What are the benefits? How to run backtesting? How to collect and analyze data? What types of trading systems can I backtest? What are the tools available to run backtests?
These and many other questions have been already answered in our extensive pool of articles on backtesting.
Tales of a Technician: Perfecting Your Process Part One
Traders should be process-oriented, not results-oriented.
Tales of a Technician: Perfecting Your Process Part Deux
Today we continue our carefully crafted tale on how to perfect your process.
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Friday Feature: The Scouting Reports Backtest Series Part III: How backtesting shaped my trading
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Friday Feature: The Scouting Reports Backtest Series Epilogue
“[…] It all comes down to mindset. Chipper talked about how it takes a strong will to be able to fail 70% of the time and press on, practicing, playing, and striving to be better without the failures weighing down on you.” Trust your system, traders.
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Tackle Trading Resources on Journaling
Trading Journals
Good traders keep excellent records. Quality trading journals are essential to your progress and growth as a trader and keeping good records will help you learn more from both your income and expense trades.
Learn more about HOW the Tackle Trading Journals can help you become a professional trader.
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Financial freedom is a journey
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4 Replies to “Tales of a Technician: Perfecting Your Process Part Deux”
Love it!
Fun and Helpful. Seriously needed to read this. Thank You.
Thanks, I’m still working on my process
Thank you very much for this. I’m starting to design my process, this gives me a much better idea how to go about it, and how to tell if I succeeded.
Comments are closed.