March 27, 2009 at 11:21 am | | Comments 1

Focus on the Process Now, Results Later (Part 2)

In recently looking through some archived posts, one that caught my eye was Dave Mabe’s from last summer.  In that post, Dave covered some very important aspects to sticking with your trading plan.

Then in catching up on some reading, I saw where David from Trade-Ideas was just discussing this yesterday over on the Trade-Ideas blog.  He brings forth some very good points, and I’d encourage you to check it out.

All of this got me thinking about where should our focus be as traders?

I’ve discussed this subject before (in Part 1), but it’s certainly worth revisiting and expanding on.

The Game vs. The Score

One of the ideas that I’m continually reminding myself of is that how you play the game is absolutely crucial to success.  It’s about the process.  Today’s trading platforms tell us the “score” at any point in time as measured by our P&L, and while that’s pretty nifty, it isn’t always beneficial. I feel it’s generally more important to focus on the process rather than purely the results. Here’s why.

“There’ll be time enough for countin’
When the dealin’s done.”

With those lyrics, Kenny Rogers said it about as good as it can be stated, but I’m still going to try to build on it! I’ve had a Kenny poster on my office wall for several years, and while he may have been talking cards (or life), the same lesson applies to trading!

I’m sure you’d agree that the trader who is focused more on his method than on his P&L has a distinct advantage over the trader who lives and dies by the red and green numbers flickering in his position window. If you can get to the point as a trader where you’re confident enough in your approach to stick with it for even a single session without relapse, you’ll be in a great position to build on that as a habit.  And good habits pay off.

Driven By Numbers

The market dishes out regular lessons on this topic to me, so it’s something I’m continually working to improve on.  It’s not uncommon to start reacting to the P&L as the day progresses, backing off when mental thresholds for a “good” or “bad” day are approached.  That can be a 2-way street though.  It can allow you to retain profits or prevent additional losses, but how can you add to your bottom line if you’re in a constant dilemma of whether or not to take that next signal?

You’ve got to play in order to win.

Anytime I get too focused on the results (P&L) during the process (in the middle of trading), my decisions tend to be adversely affected, which in turn has led to a plethora of mistakes.  It happens when my attention is fixated on my P&L – when it begins to cloud my thinking and skew my view.

Sometimes striving to achieve some set level of profits for the day can result in overstaying my welcome in trades.  At other times, that desire to secure a good day has caused me to exit prematurely from good trades which were giving no reason to bail.  Both are cases in which my P&L was the driving force behind my decisions.  But the tape should serve that purpose.

Maybe you’ve been there too.

The Buzzer

Flexibility and a willingness to adjust your plan when conditions deem it necessary doesn’t have to mean going into shut-down mode. If there’s clearly a reason to call it a day or a week, then don’t force the issue.  Whether that means a lack of setups to play or just poor risk/reward conditions, submit to it.  And if you’ve hit a drawdown level that tells you it’s time to stop losing, then do it.

But barring that max-loss situation, when it comes to trading vs. not trading, the deciding factor shouldn’t solely be your P&L.  Commit to deciding on a per-trade basis, and see where it gets you. Take the good entries which come your way if you know they are suitable for your method and the overall conditions are in favor for your approach.  Otherwise, pass and continue waiting.

At the end of the day, add it all up.  Some days will be mediocre, some will be excellent, and some you’ll be eager to forget about.  But as long as you keep doing the things which you know will deliver success over time, there’s no reason to let the scoreboard distract you.  That’s just one of many ways to get beaten.

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service

[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]


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  1. From Psychology of Overbought, Oversold, and Market Extremes | on Jul 28, 2009

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