Thursday, 28 October 2010

Costs and Consequences

Everything we do has a cost and everything we do (or don't do) has a consequence. People seem to live in the "now" rather than looking at the bigger picture. Whether it's "I would rather play a video game than do my homework" or more serious choices, such as only doing the minimum you have to do at work, rather than doing the best job you can. It all has a cost and a consequence. Sometimes the cost and consequence is delayed, but it always comes. People do not seem to be acting in their own best self interest and suffer from what the latest buzzword refers to as "unintended consequences", meaning "Gee, I didn't realise that would happen if I failed to do this or I did that".

When applied to trading, the consequences can be very costly and often the person does not even see that it is a consequence.

The road to becoming a consistently profitable trader requires a roadmap, just like the road to becoming a brain surgeon, an accountant or any other skilled profession. The roadmap to learning these deeper skills is created by people already skilled in the activity, and skilled in the knowledge transfer for acquiring the skill.

With no back testing, the consequence is not knowing whether your strategy is profitable, what profit target to use, what stop to use, what your trader's profile is, and so on. It's trading blind. There is a checklist of things that are required, in my opinion, to get to CP. All of these requirements have been discussed in this blog many times. Trying to take a short cut to CP by leaving out any of these requirements in an attempt to speed up the process even more will almost certainly result in the consequence of failure.

I sincerely believe that it is this failure by traders to apply a structured and proficient training to the process of becoming a trader, encompassing both the training of "muscle memory" and the development of the skills and confidence, which is responsible in great part for the huge failure rate in our business. It is not enough to just show up. A long time ago, Einstein theorised that the shortest distance between two points is not necessarily a straight line.

Candace and I are in NYC and back to London and France on Sunday. Kiki is in France and I'll meet up with her on Monday. It will be back to business as usual on Tuesday.

Being able to watch the Chicago group take on the methodology in person was a blast. By taking on the roadmap, they are now all working their way to CP (or better CP)!

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