Every day is a new day. I guess all of us would agree to that. We may do the same things during the day- have breakfast, go to office, face traffic jams or crowds on the subway, gossip or attend meetings in the office and occasionally do some work, wait for the end of the work day, head home, watch TV, have dinner, go to sleep. But still, we know that every day is a new day, bringing with it variations that we know not, but which we expect or hope to deal with using the power of our daily routine. In fact, the sameness of our environment, the consistency of our routine are strong influences in our lives, enabling us to deal with the day as it comes. When there is something quite out of the ordinary, we have others around us in our lives and our daily routine (family, office colleagues, friends) who helps us to deal with the changed situation and we manage to muddle through.
What about traders and investors? They too face every day as a new day in the markets. However, the newness of the day cannot be dealt with using a routine, unlike our normal lives! For, there is no routine. Nothing stays the same as far as the market environment is concerned. You left the index at a high yesterday and come in today expecting a continuation but the index opens down with a gap! You were long a couple of items, expecting some quick Btst profits to come in and suddenly you find that your items are in the red and you don’t know what to do! There are no meetings to hold, no colleagues offering solutions or holding your back, no one to turn to for assistance and certainly no one to bail you out of a sticky financial situation. You are utterly on your own and without a clue as to what needs to be done.
When faced with such a situation and knowing that we will face such a situation every day of our lives, the only dominant emotion in every trader and investor is one of Fear. Just think of this- are we really, ever, afraid to go to our offices and face the work that awaits us? None of us are, right? That ‘s because there is a sameness about the work and the way it has to be dealt with and the whole thing is already structured and in place even before you came and all you got to do is just follow it. So the sense of comfort is high and when fear is not in the equation at all, one is able to do a reasonable job of it. But when faced with markets, the situation is completely different and here is why people find that they make a mess of it.
The answer therefore is quite self evident. We need to bring some sort of routine into our trading and investing that takes the Fear element out of it! We have to introduce a ‘sameness ‘ into our work that makes it easy for us to do it. There is a certain process in every office isn‘t there? The work is well defined, the process is well defined, what you need to do is clear and what you need to do if something doesnt work is also reasonably well defined. Lets see if we can bring that into our trading environment.
The work is well defined- we need to buy and sell in order to make profits. So no issues on that one. Is the process defined? Aaah. Now here is the problem. Almost no one has a process even defined, forget doing it well! So that ‘s the place to start- lets lay down a process for doing the work. Once you do that, the process itself will tell you what you need to do with sufficient clarity- whether things rae working out or not. It is the process that decides what and when to buy or sell. It is the process that decides what sort of risk you will run on the trade (using stops and targets). It is the process that will signal to you if things are not going to work out and then you can bring in additional modules in the process to deal with it or perhaps exit the trade in toto.
By doing this we introduce the element of sameness into the game. Then we know what to do and will not have difficulties in doing it to. Most times no one is really thinking about the processes that exist in their office environment- you just go there and start doing it. In quite the same way, traders too need to do exactly the same thing- just look to the process and start doing it- every single day. That Is all it takes.
What comes in the way?Our sense of our own smartness, an exaggerated view of our abilities! And since we are the masters of the process (having created it ourselves), we are in a constant dialogue with ourselvels about the merits and weakness of the process. And since there is no one to stop you from changing the process (something, note, that you cannot do in an office), we chop and change the process every so often. The result is that the Sameness that we wanted to introduce to overcome the problem, now goes missing. We therefore come back to the point where we don’t know what to expect. For every twist in the tale, we change the process. The more we change it, the less the sameness! Thus, the freedom we enjoyed in creating the process is now the very nemesis of our end result.
So, what is needed now is steadfastness to the process. That is a developed habit. The office and its processes create a steadfast habit swiftly because there is no freedom to change it. So you quickly fall in line. What if we bring that aspect into our trading process as well? Lock the process for a decent length of time- say 3 months at the minimum. Then look at the results. Assuming that you have been diligent about executing the process as it has to be, the results should be realistic. Only then check whether some tweaks are necessary or could be made to achieve improvements.
Most of us refer to this as Discipline. Doing something consistently. It is a habit to develop. But discipline has to be attached to something- it cannot exist by itself. So attach discipline to a process. If you are unable to create a process, then borrow one or subscribe to one or purchase one off the shelf. But make sure you have one. Discipline can emerge only when you have a process. Then work that process. An advisory service is the most common process that one can borrow or purchase. Here don’t apply your brains and ingenuity. Just implement that process as it exists. Assess the results 3 months after starting. Change the process if results are not satisfactory. But make sure before changing it that you have been consistent in the deployment of the process.
Its not really all that difficult. You can see that there is a definite solution to the problem that seems so challenging from the outside. All it needs is some clarity of thinking and developing some new habits. And to stop thinking of how smart you are!As Pogo said, we are our own worst enemies!