I really loved the post recently by Farnam Street regarding their own Principles.
I couldn’t help but think, as I almost always do, as to how what I was reading relates to trading. Not only trading itself, but very much around trader development, which if you’re a trader, should be an extremely important topic for you regardless of where you are on the learning curve.
They listed five principles:
- Direction Over Speed
- Live Deliberately
- Thoughtful Opinions Held Loosely
- Principles Outlive Tactics
- Own Your Actions
Holy smokes batman! This gets me fired up just typing out the list. Let’s dive in to each, and how it relates to trading.
Direction Over Speed
- In terms of development, know a direction to take; a path, so to speak. Have some form of a developmental compass to guide you. Don’t just blindly try and get better faster by trading more. That’s just a great way to develop some terrible habits.
- In order to develop properly, take a mastery-based approach, and build from the ground up. Pushing through faster to new concepts is not going to help you. Some of my own students ignore this at their own peril when they skip ahead to more advanced, “sexier” techniques within the methods I teach.
- Prioritize market direction over a more short term speed of price movement. Context is king. Understand likely direction within a powerful contextual framework. See where risk/reweard is skewed. I use Market Profile for this. Believe it or not, you can learn to see things about markets that most people wouldn’t believe.
Live Deliberately
- To “live” as a trader is to “develop”; they are synonymous. There is no question about that. Therefore, we must develop deliberately. Take conscious control over your development. Set forth a daily process goal, something that is within your control, and focus your energy towards success of that one thing each day.
- We can also do this by living deliberately in terms of daily routines: preparation, things outside of trading like eating, sleep, exercise, along with journaling, review work, tracking stats, observing market behaviors, etc. All of this needs to be done deliberately, not just randomly when we feel like it.
Thoughtful Opinions Held Loosely
- These guys must be traders, right? Wow. We want to develop a well crafted plan of attack for a session or particular trade- we’ll call it an “opinion” you develop. Have the trade thesis thoughtfully put together with multiple timeframes, confluence, etc. Then… and this is really important… hold on loosely to that opinion! We’re dealing with an extreme amount of uncertainty in financial markets. Trading is not about being right by having your “opinion” validated. Holding on tightly to an opinion leads to disastrous results in trading as your perceptual filters (created by the attachment to your opinion) remove you from objective reality.
- Again, how do you react when faced with market generated information that conflicts with your cherished current view?
- Markets evolve over time. Remain a constant thoughtful observer of how they are evolving. Besides, as they say in the Farnam Street post, “None of us have a perfect understanding of the world we live in” and that absolutely holds true for market understanding.
Principles Outlive Tactics
- The first thing that comes to mind for me is context again. Framing the context of the market- determining what I call the “Current Market Condition” whether it be a balanced market, or imbalanced/trending market, is way more important than the shorter term “tactics” that are then applied. If I have the context wrong, the tactics I apply are going to be pretty unimportant! The “10 Laws of Market Dynamics” we’ve defined in the MP Course are like Principles of how the markets operate. Knowing them and applying those “principles” allows me to then go apply appropriate tactics.
- The Farnam Street article talks about american football play calling. They talk about how some coaches design fantastic plays based on the strengths and weaknesses of their team as well as the opponent. The plays are based on key principles they fully understand. On the other hand there are “play stealers”- other coaches that say, “oh hey that’s a nice play, let’s run it on our team!” Who’s going to have more success? You guessed it, the team running the plays having full understanding of the principles behind it. The same holds true for trading and those out there that constantly try and adopt trades and methodologies from others- without building a foundational (principles) understanding of what they’re doing, it’s just not going to have the same success as the creator of the method.
Own Your Actions
- Now we’re talkin! I constantly see traders that refuse to take responsibility for their own actions!
- We aren’t naturally wired to expose our egos or open ourselves up to honest criticism, but this is something any CPT must learn to do- daily and objectively.
- That’s right guys, don’t blame the hft’s. Don’t blame the lack of volatility. Don’t blame “them” hunting your stops. Own your trades! Own your method! Own it and if there is room for improvement, just get better!
I strongly believe that if you can come up with a development plan, learn to see quality R/R and likely direction, do things daily to get better in a deliberate fashion, learn the truth about uncertainty and hold on loosely to your opinions, develop solid market worldview principles, and take responsibility for your actions; you’re well on your way to trading mastery.
Trade well,
Merritt Black
*No Relevant Positions
