Lessons from the Pros

Specialty Skills

To Build Trading Skill You Must Measure Your Results

Jason looked at his trade with both a little disdain and a note of assurance. He had placed a limit order on the 5 minute NQ E-mini chart to go long at the fresh Demand Zone that he had drawn after identifying it on the 60 minute chart. He had a plan and now he was trading that plan. He placed a stop just below the lower line of the level.  Unfortunately, it was a little too tight, only 2 ticks, and he was stopped out.  He felt disdain and the emptiness in the pit of his stomach because of the loss; and on the other hand he had kept his commitment to his plan and did not give in to the urge to move his stop. Then, he immediately decided to write what had happened with his plan in his Trade Log and his thoughts and feelings in his Thought Journal in order to do better next time.  He was measuring his trading results and documenting what had gone wrong.  He was using feedback from his plan and his follow-through.

Feedback is essential to any knowledge based performance.  You must have a way of knowing “how you are doing” with respect to the variables that make up the process … in the case of this conversation, trading.  Now, there are some traders who would say, “All the feedback I need to know is if I am making money or not.”  To this I would reply…if you are not measuring, tracking and documenting your trades you have virtually nothing upon which to base your progress.  And, if you are trading by chance, you my friend are putting your money at risk unnecessarily.  Basing your trades solely on profit & loss is an ineffective way to measure your “mastery” of the process.   If you don’t know what you did right or wrong, then you can’t duplicate or eradicate the behavior.  Without this knowledge, you are trading by chance.

Trading mastery involves a set of variables or items that lead to “skill building.”  Skill building is critical to any performance based endeavor because that is the path to getting better.  And, the essence of skill building hinges on being self-aware.  If you are self-aware then what you do, how you do it, the frequency with which you do it and the order become variables that you are not only able to track, measure and document, but you will be able to manipulate as well.

Firstly, skill building involves a set of trading protocols.  A protocol is a sequential order of steps toward an aim or goal.  And, protocols can be found across the board having to do with anything that involves performance; like medicine, law, accounting and sports, to name a few.  These trading protocols are made up of strategies, procedures, set-ups and rules.  They are talked about, reviewed and evaluated in special classes, for instance Online Trading Academy’s Extended Learning Track where rule based trading is emphasized through strategies and set-ups.

Secondly, protocols must be supported by effective routines.  This is where you take the sequentially ordered protocol and develop a routine where you are doing the same thing and in the same way “over and over.” For instance, the Supply Zone/Demand Zone strategy of identifying the trend and levels of the price action (a protocol) would be supported by a checklist of doing things like checking the broad markets, bigger and smaller time frames, any economic reports, etc.  This approach not only instills the behavior into a set of responses that support the overall goal, but it also trains your system to continue to follow-through when things get difficult because you have a checklist.  Training is about learning and doing.  You’ve heard of the adage “practice makes perfect” well actually practice makes “permanent” in your body/mind system through the process of muscle memory and brain encoding.  All world class achievers have trained for years to accomplish their goals.

Thirdly, it is imperative to create a feedback loop in order to verify and document whether or not the protocols are performing adequately.  Through measuring, tracking and documenting you will identify not only what needs to be modified or changed with the protocol or strategies and set-ups (the mechanical data); you will also identify what needs to be modified in your thinking and emotions, (the internal data).  Of course, feedback can be principally a “self-monitored” process; but, as well it is also extremely effective when you are given critiques from someone else.  But, the point is that feedback in any form and from any aspect of your immediate environment should be welcomed and never taken personally.  It is only additional information, which can be the lynch pin of your ability to master the process.

After you have used your feedback to judiciously manipulate your mechanical data and as well your internal data and you have implanted the routine, then you have begun the process of habituating the entire sequence.  Habits are powerful and you know from your own experience that good habits lead to desired results and bad habits lead to headaches.  So in part the conversation is about instilling strong, goal oriented habits that will lead you to what you want…skill building.  Also, when you have incorporated a skill into your mind/body system, and in other words you have mastered the process, you have gone from being totally unaware (unconscious incompetence) to working on what you have identified (conscious incompetence) to establishing a routine (conscious competence) to habituating the thinking, feeling and doing (unconscious competence).  The beauty of being unconsciously competent is that the behavior becomes the default mechanism (an option that is selected automatically unless an alternative is specified) for following through on what matters most in your trades.  Remember when you were learning to drive.  It was very scary and difficult.  You went from being unconsciously incompetent (you didn’t know what you didn’t know), at 4 or 5 years old; to consciously incompetent (you knew there was a process called driving and at 10 or 11 you were painfully aware that you didn’t know how); to consciously competent (at 15 you were learning and you had to think about every small detail as you drove); to unconsciously competent ( at 30 your skill level had dropped into your subconscious behavior where you could eat a burger, talk on the phone, and drink a cup of coffee simultaneously while driving – of course not recommended).

So, skill building is the path to attaining, maintaining and sustaining your A-Game.  And, you cannot skill build without a feedback process that is aimed to identify what works and what doesn’t, which of course is related to both the mechanical data (all the market, news and indicator driven data) and your internal data (your thoughts, emotions and behavior).  You must track, measure and document all significant data (any data that materially affects your trade).  If you do this religiously, and use the information to modify your protocols and routines you will habituate this process and you will build your skill levels.  Trading in the trenches requires the best that you have to bring to your trading platform.  Thousands of traders out there are willing to do what it takes to master the process.  You must ask yourself, are you willing to do what it takes?  Master your mental game.  Ask your Online Trading Academy representative for information on classes that are designed to help you do just that…skill build.

Happy Trading.

DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

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