Yesterday I spoke about a new format for learning. Today I’d like to run through some of the content.
Years ago, my process for teaching was to explain the theory and then proceed to the practical. I found, however, that this was not the most elegant approach. Too often the seminar attendee would become obsessed with something he could not understand; that obsession would prevent him from proceeding to the practical. In other words, his lack of understanding barrier blocked further learning. It’s important to bear in mind that often ‘we don’t understand’ because we can’t see how something would work in practice. If we allow ourselves to perform without conceptual restraints, more often than not, we’ll experience an ‘aha’ moment.
Nowadays, I focus on the practical first. For example, in my seminars, I show the participants how to construct the Excel spreadsheet and how to manually produce the reports needed to monitor their trading results. Once they learn that, I explain the rationale behind each sheet and report. I find that doing it this way results in greater understanding.
I do the same for the psychological journals. I show how to construct the ratings system; then I show examples where the ratings pin-point areas of weaknesses that need attention; only then do I explain the rationale.
Teaching the trading plan follows the same line. Firstly I show the practical steps. For example I say: ‘you identify the trend in three steps: X, Y, Z. ‘ Then I show examples of the three steps and I say: ‘once you have your strategy, you need to take a low risk entry. This has 3 steps….’ etc. It’s only after we have completed the practical aspects of trading the plan that I explain the rationale behind each step.
Finally, I run a series a simulations starting with one done entirely by me and ending with one done entirely by the class.
I have taken the trouble to set out the process because you can use it for your own learning. Start with an idea e.g. identify the trend and then sort out the tools that will allow you to do that. Once you have assembled the tools and rules, test the logic (i.e. test the rationale, the premise of the idea). Remember that most trends move from Bull-to-Sideways-to-Bear, and vice versa. Very rarely do trends go from Bull-to-Bear.
Once the logic is tested, you are on your way to a robust plan.
But as I said yesterday, to succeed in the markets, you need to execute consistently. This implies you need to be aware of the conditions that lead to a breach of discipline and the conditions that lead to superior results (the rationale for psychological journals). You also need to be aware of the optimum position sizing, portfolio sizing etc (money management); finally, you need to be aware of how to manage a trade beyond placing a stop loss (trade management). Master these aspects, and you have the foundation for your success.
Except for an announcement I shall make on Friday June 6 2008, this will be my final pre-op post. I have asked Ms Ana Wang to take over editorial and writing duties while I am convalescing. I hope to be up and about on July 21.
All the best with your trading!