A few insightful posts from Dr. Steenbarger

Take some time to read the posts below. I will be answering the questions in the second post this weekend. My live account is now set up with OceanView Capital and I will begin trading live on Monday morning. I will prepare this weeked and button up the rest of my trading system. I feel the most prepared now more than ever. I feel like I have purpose when I go into the markets. that is not to say that I will not make any mistakes but if someone were to ask me what I trade, how, and why? I can come up with a more conclusive answer than a few months ago. I have a defined system that gets me in and out of stocks. Lets see what the markets will give me.



Continuous Quality Improvement in Trading: The Value of Elaborating Your Trading Process

If you look at successful manufacturing companies, such as Toyota and Honda, you'll find that they understand their production processes very well. They keep a close eye on quality and intervene quickly should they deviate from their own quality standards. That enables them to produce products, year after year, that are surprisingly free of defects.

Trading is far more fuzzy than manufacturing, but I think it still helps to view ourselves as profit factories. We take certain inputs--the data we collect on ourselves, the research we produce, the preparation for market days--and transform those into outputs measured in profits and losses. To the extent that we are consistent in our "best practices", we can maximize profitability and minimize our own defects.

I see it in my own trading as well as that of traders I work with: the process is too loose, too open to random, subjective inputs. We will be swayed by something we hear or read; we will become so locked in an idea that we miss important market data. Worst of all, we will produce defect after defect and continue the assembly line of trading.

You cannot double down on your processes and tighten them up if you don't know what they are. Only by reflecting on your best trading and dissecting your best decisions can you figure out how you do what you do when you are at your best.

In coming posts, I will be elaborating my own trading process, as much for my own development as to aid others. My goal in this is not to provide a template for how to trade; each trader must arrive at their own. Rather, the goal is to illustrate and stimulate how continuous quality improvement can apply to something as fuzzy and discretionary as trading.





Reflections on Trading Processes

What is your trading process?

* How do you generate your best trade ideas?

* How do you manage risk most effectively?

* How do you manage positions most effectively to get the most out of trade ideas?

* How do you most effectively manage yourself and your emotions during trading?

* How do you prepare for market days most effectively?

* How do you best review markets and trading performance for optimal learning?

What I find is that the traders who have been successful over the long haul know the answers to these questions and also have very distinctive answers.

Like Toyota or UPS, they have developed their own, unique processes that are both efficient and effective. Success is a function of refining processes over time and becoming ever more consistent in following those processes.

If you *know* your processes, you can more readily develop confidence in them. Many times that is the difference between making the good trade and not; avoiding the bad trade and not.

Half of the challenge of trading is finding your best practices; the other half is implementing them with fidelity and consistency.