How to Build a Robust Trading Process

Creating a robust trading process is a cornerstone to becoming a consistently profitable trader. Outlined below is a methodology to build a robust trading process for each type of trade in your playbook. When completed you will know and understand your EDGE.

Summary

  • Trading is a Craft
  • Craftsmanship is learned by practicing a robust process
  • Practice takes time
  • Action Tips & Strategies on how to develop a robust trading process

The path of the aspiring Trader is often a long and painful one.  Traders working towards consistent profitability often find themselves at dead ends or on circuitous paths that go on forever and lead nowhere. This stands in stark contrast to Kyle Dennis, star student of Jason Bond. You know, the guys on YouTube who are boarding private jets after trading 20 minutes a day in their pajamas using 3 indicators. It’s simply amazing how they can parlay $15,000 into $4 million in 2 or 3 years, while the rest of us find it a little more difficult.

We can’t all be Kyle Dennis

Luckily, we mortals can look to the thought patterns and behaviors of successful long – term market participants to shine a light on how we can modify our own thoughts and actions to improve our chances of success.

Pro Traders focus on their Process not Outcomes

Graphic Credit: Edgewonk

Think of the great craftsmen you know. It doesn’t matter if they are a chef, cabinet maker, or artist.  They are great because they have developed a process that yields superior results. That process has been developed over time through apprenticeship and practice.  Talent doesn’t hurt either, but its devotion to process that truly moves the ball.  Quick Story: My Grandfather was a small home builder in a time long before nail guns and cordless tools. A right of passage for any would-be carpenter on his crew was the ability to hang a door. We are talking hand chisels and hand drills on raw wood.  There is a precise process to hang a door correctly. If you don’t follow the process, or if your process is flawed, the door binds.  Trading is a craft. Approach everything you do as a talented craftsman would.

Many aspiring Traders get derailed chasing outcomes. I want my money and I want it now. That type of thinking leads to over trading and taking sub-optimal set ups. The problem comes when it doesn’t work. Without a process, there are really no knobs to turn, nothing to tweak.  A master Chef can tweak a creative recipe with a pinch of salt or by letting the pot simmer an extra 10 minutes.  A trader without a process is lost in the dark.

Action Ideas & Strategies to create a Robust Trading Process

  1. Catalogue the trade set ups you like to trade. These may include
    • Earnings or news catalysts
    • Gaps
    • Buy at Support; Sell at resistance
    • Technically Triggered Trades
    • Breakouts / Breakdowns
    • Trend Trades
  2. Narrow your focus to your favorite go-to set up.
  3. Write down the specific criteria required before you can take the trade
    • Example for a bullish trade might be. Stock Market is bullish / Stock Sector is out performing  Market / Stock is outperforming Sector / Stock above 200dma / MACD above 0 / RSI above trend / Price is breaking out / include exit criteria /
    • Its very important you include ALL your criteria.
  4. Create a Trade Plan Worksheet
    • The worksheet should include a checklist that includes each criterion
  5. Paper Trade the Process for Validation
    • Trade your process 25 times on paper
      • Experienced traders are welcomed to trade live, but are encouraged to trade with small position sizes.
    • Keep careful notes on your trade plan. Follow whatever process you created.
    • If you quickly determine an element or criteria is missing, go back and modify the process, then start over
    • After 25 trades, analyze the results. The paper trade results will be the BEST your process can achieve because your execution will likely be different when money is on the line. If the results are marginal or if the process kicks out losses, its back to the drawing board.
    • Once you have a process that kicks out profitable trades then you are ready for live trading
  6. Live Trading
    • Trade micro positions. Validate you can execute the process.
  7. Quantify your EDGE
    • Explore your winners and losers. Determine the numerical quantity of each. Ie  15 losers and 10 winners.
    • Calculate your percentage win or loss for each of your trades.
    • The difference between the two is your EDGE.
    • What you are looking for is a statement of statistical certainty that you make a certain percent with that particular set up over time.   On breakout trades, I make on average 6.4%.
  8. Expand your Playbook
    • Now with one set up and process in the bag, you can work on expanding your competencies.
    • Develop a process for another set up you like or want to trade.
    • An easy one is to flip your bullish breakout trade process to a bearish breakdown trade
    • Over time, like a craftsman, you will fill your toolbox with robust tools and processes to tackle any job with confidence.

Not gonna lie; Building a robust trading process is real work. It takes time and a lot of persistence but the rewards for the effort are great. You’ll be able to confidently put on trades you know have edge. That’s powerful!

Good Luck; Hope it helps!!

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