July 13, 2013

• Suceeding in Trading, Like Many Things, Requires an Iterative Process

  When people I talk to IRL find I actively trade, I often get the “Teach me to trade!” as one of the responses. The feeling comes across that I could sit down with someone and and after a session of explaining all the “secrets”, they’d be newly minted traders immediately able to conquer the markets- like there’s a special “gimmick”  to be made aware of that will make mastering trading a snap.

  Truth is, like most major tasks one sets out to master, it requires an iterative process where you go from a larger “generic” plan and work it down to the specific details necessary to implement it.

  

   

  For example, the recipe for generating wealth can be summarized by the following:

  1) Find a good paying job

  2) Save more than you spend

  3) Invest your savings

   

  Sounds simple on the surface level, but as they say, the devil’s in the details. Each step breaks down into multiple questions, which in turn generate more sub-steps:

  1) Find a good paying job

  a) What jobs are available?

  a1) Determine list of available jobs

   

  b) What are their qualifications?

  b1) Do you qualify for the job?

  b2) Is advance education needed?

  b2a) What school to go to?

   

  …and so on, and so forth. So those three simple sounding steps can quickly morph into quite a complex and detailed set of tasks as you start formulating a plan of action. It’s clear that attempting to implement that plan will require dedicated time and effort to keep breaking down the steps until you arrive at the specific actions to carry out.

  There will also be some “missteps”, where you proceed on your best guess with the information you have, but it turns out that move was a mistake- requiring you to backtrack a bit. As you proceed, other steps will also become apparent, enabling you to develop further plan details.

  So the question to carrying out this plan becomes are you willing work through the process of fleshing out all the steps of the general plan in order to create a specific plan?

  It can feel daunting when you think about all the steps involved, but if you just take it a step at a time instead on trying to focus on everything, the plan feels much easier to implement.

   

  

   

  Learning to trade well uses the same process- starting with a general simplified plan, then adding more sub steps and details to get it to the point of execution.

  Of course trading presents a higher level of difficulty because there is a flood of uncertainty and seemingly random market behavior. The initial steps may look something like this:

   

  1) Determine generalized market behavior

  1a) When is it more likely to rise?

  1b) When is it more likely to fall?

   

  The complex/unknown nature of the market can make even forming the initial steps a challenging effort.

  One potential trading pitfall is coming up with an inaccurate simplified plan from the start, as the resulting detailed plan would be doomed from the start.

  Fleshing out the following steps after the simplified steps are created can also be difficult due to the amount of market variables at your disposal. However, once you start moving down a path, creating successive steps become less difficult over time as you figure out what works and what doesn’t. The key is to be disciplined and systematic and persevere through the whole process as you develop greater and greater step details trying to implement your plan. Being systematic and disciplined is crucial to keep from getting bogged down. If a certain planned path doesn’t work, you want to be able to discard it without having it repeated, while keeping the parts of the plan that work. Otherwise, one can keep running in circles, a fate which happens to many potential traders.

  The magic part about putting your brain to work is that even the most complex tasks can be broken down to a simplified and achievable step by step process, as long as you’re committed to see it through.

   

   

   

  • 12:59 am
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