The Habit of Process

BarroMetrics Views: The Habit of Process (In Attaining Your Trading Dreams)

Last night, probably for the last time (at least for the next 3 or so months), I met with some members of the March 2011 class. I started the session with an observation that

  1. ‘Process’ is important in our quest to attain our trading dreams and
  2. We need to make a habit of those things that make us successful traders.

My take on trading success is: trading success is relatively simple – because the essential habits have been clearly laid out, we don’t have to rediscover them. But they are not easy – because the markets are uncertain and ambiguous and our minds abhor uncertainty and ambiguity. Did you know that when faced with uncertainty, our minds light up the same areas as those that light up when we experience pain? Given the human tendency to do whatever it takes to avoid pain, we need to find solutions to uncertainty – if we are to succeed.

My solution is make the steps in trading as automatic and habitual as possible. That way the process is certain and unambiguous even though the results may be otherwise.

What are these steps?

No secret here – you’ll have read them in many a book. The thing is: how many of you follow it as a matter of course? Turn the steps into a habit is my mantra. Here are the questions:

  1. What bias do I see for this trade? That is: will I go long or short?
  2. Where do I take the trade? That is: against what support (for a long), against what resistance (for a short)?
  3. What do I have to see to initiate the trade?
  4. What is the position size for this trade?
  5. How do I manage my initial risk? How do I manage a profitable exit?
  6. Is the perceived reward:risk adequate (given my Expectancy Return Ratio)?
  7. How have I checked my open positions, and GTC orders (to ensure there are no unpleasant surprises)?
  8. Have I checked my fills (so what I think I did marries with what the broker says I did)?

Only eight questions.  Yet if we make answering them a habit, our bottom line would undoubtedly benefit.

A friend of mine, Peter Ow, reminded me yesterday….

….Every 3 to 4 years, I suffer an attack of Transient Global Amnesia. On the last occasion, I was trading from Sydney. One moment, I was sitting at my desk around 10:00 am and the next moment, it was late in the evening. I remembered nothing of what had occurred in the intervening hours.

What amazed me from my doodling, was this: it was clear that I had become disorientated very shortly after I had initiated a trade. Still, the habit of protecting my capital was so strong that I somehow remembered to put in a stop.

If we want to succeed in trading, we must manage our risk. All the ads in the Singapore newspapers to the contrary, success comes from the old adage of:

  • Keeping position sizing small enough not to risk ruin but large enough to make the returns worth the risk;
  • We make the risk worthwhile by minimizing our inevitable and certain losses; and maximizing our inevitable and certain profits.

13 thoughts on “The Habit of Process”

  1. “it was clear that I had become disorientated very shortly after I had initiated a trade. Still, the habit of protecting my capital was so strong that I somehow remembered to put in a stop.”

    Simply amazing. Have not commented here in a while, but I do keep up with your excellent posts. Hope all is well.

  2. Hi EB

    Welcome back!

    Yes everything all fab! Trading, well – new trading school, well- relationships, well. What more can a man ask for?

  3. Drill –
    Practice an action repeatedly in order to perfect it.

    May be Barros Drill would help the students to form the Habits of Success? 🙂


    Hi Ray,
    On Monday evening, after the Wyckoff Talk, our HOS study group has our first meeting.

    I would like to report to you that:
    For the 4 ladies in my study group, the Fire of Learning kindled by HOS 2011 (Mar) is still going strong!

    What more can a man, Ray, ask for? LOL!

  4. Just now, I read what Bella wrote:
    “Traders are comparable to pro athletes in that we are paid on our performance and our performance is a function of our skill development. Too often new traders think trading is about acquiring just knowledge. It isn’t. Acquiring knowledge is just the first step in developing skill. Next comes a large does of intrinsic motivation, supplemented with critical feedback and then the grind of purposeful practice. Kobe wasn’t born an elite basketball player and and the skill of trading intuition takes years of work to develop.

    Each day our goal ought to be to improve. Each trade our goal ought to be to make One Good Trade. If we do this then the results can follow. If we are hyperfocused on money or winning then we will not last as pro traders. Our job is not to make money it is to improve everyday.”


    In short, we must keep Equity Journal & Psyche Journal to help us to improve everyday?

    Hi Ray, your comments please.

    The HOS 2011 (Mar) students are waiting to receive your Psychology Video. 🙂

  5. Hi Paul

    Yes I agree with Bella.

    Re Psych Video: given my experience with what the group did with the Risk Management Video, I shall be producing the 4 – 5 one hour videos.

    This takes a lot of planning. So be patient and wait for next week – that’s the date I set in the latest post to the group.

  6. Hi Ray,
    I joked with the ladies in my study group that you taught us that we should be a left-brain trader as well as a right-brain trader, and I gave them a test.

    I showed them a picture and they had to identify the 9 hearts in the picture within 3 minutes.

    One of them got it easily.
    The other lady wrote that she needed help to activate her right-brain because she still could not find the 9 hearts.
    She asked: “How to make the right brain start functioning?”

    Joke aside, Patterns recognition is very important in trading.

    Watching the video, during a session, looking at the higher time frame chart, you were asking the class how they felt about the chart.
    Because of your years of trading experience, it comes as a trading intuition that you could “feel” about the chart pattern easily and immediately, whether you like it or dislike it for trading purpose.

    For example, you could see an inverted Head & Shoulders Pattern easily, but some may not see it even you tell them that there is such a pattern.
    You could “feel” the market well, but many would fail to discern the nuances.

    For us, the HOS 2011 students, how could we improve our chart pattern recognition and chart “feelings” skills?
    ~ To help us answer the 1st question of the Critical Questions (given to the HOS 2011 students). 🙂

    Any good resources to help us?

  7. Hi Paul

    Sounds like a rollicking good time had by all at your last meeting!

    Turning to your question… Somewhere in the live session I gave the answer:

    a) Use the Coyle model in simulated trading.
    b) Part of Coyle involves recording your observations in a journal; this includes any ‘gut’ feel you may have about the market. Then
    c) Review the accuracy of your observations
    d) Finally, determine what action you can take next time to improve the accuracy. Make sure your journal has an action page.

    At the beginning, make each part of Coyle a separate process. Ultimately the process will become a habit.

    As your market knowledge improves, so too will your observations and ultimately your intuition.

    An aside….One thing that I did not cover at HOS is ‘how to study’. Perhaps I should. Here’s why I say this…..

    One observation I made to myself from the live sessions: many of the attendees are excellent at remembering details but are unable so sort the details from the main points.

    It’s important that for trading we adopt a top down approach. That way the mains are given the most attention in the analysis.

    I know I tend to teach in this format; but
    given the attendees responses, I’ll have to improve my presentation to emphasize this approach to learning for the next HOS.

  8. Hi Ray,
    Thanks for your reply.

    You have reminded us how to apply what was taught in HOS 2011 live session (e.g. Coyle model, journal) to close the gap between the results and the desired Patterns Recognition outcome.

    On study:
    I totally disagree that “Knowlege is Power”.

    I would rather say:
    “Wisdom is Power!”

    I agree with your observation.

    I would like to add:
    It is easy to remember the details of the knowledge.

    But it is the understanding, the questioning & application of the knowledge that make the real difference.

  9. Hi Ray & Anna,
    My study group has our first “formal” meeting last Saturday (4 Jun).

    They told me they would trade at 9 pm Singapore time (after work). So we looked at the EUR/USD 15-min chart, starting from the 1945-bar.

    When this bar has completed at 9pm, I would “force” them to answer me the question
    “Given only a choice to buy or sell, would you buy or sell now? Why?” 🙂

    Lady J, who asked a lot of questions during the seminar wrote to me:
    “The session was very beneficial, especially during the simulation of the charts :-)”

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