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Process versus Outcome

A good trade is one where you followed your process regardless of whether you made money or not. A bad trade is one where you didn’t follow your process regardless of whether you lost money or not. Amateur traders make one big mistake at the beginning.

They get all wrapped up in their trading results each day, sometimes new traders will even be watching their results each hour. They judge their trading by whether they make money on each trade. A good trade is when they make money and a bad trade is when they lose money. They are results driven; they may not even have a process. They have it all backwards; it is having the right trading process that will make you a profitable trader in the long term. Trading results can be random in the short term.  New traders can focus too much on making money in the short term while professional traders are focusing on making the right decisions so they will be profitable in the long term.

Many times new traders see everything in black and white at the beginning; they can judge the quality of their trading by money and results. A trend trader can step back and judge the quality of their trading by whether they followed the process by trading their system with a plan. If a trend trader is in a drawdown they are able to understand that the market may not have been conducive to their system in the short term. If you are a trend trader and the markets you are trading are not in trends for a few months then of course you will likely not be profitable. A new trader that is results focused will jus thing that the trend trader’s process does not work. A trend trader is just trading their process waiting for the next trend to bring capital gains.

A trend trader understands that their part in the trading process is to develop and back test a trading system and then trade it with discipline using risk management and a trading plan. Once they enter a trade they can’t control whether it is profitable or not. A trend trader can control his entry, position size, stop loss, and trailing stop but not the price action.

Process versus Outcome

Process centered trading is where a trader judges the quality of his trading by how well he followed his process. Process oriented trading can result in long term success if the trader has a winning system. Trading a process lowers the levels of stress and confusion in trading. It focuses the trader on simply executing what they already know is a valid system that should lead to long term profits. Results centered trading judges the quality of the trading on whether money was made or lost. The problem with results oriented thinking is that bad trading can result in short term profitability but in the long term a trader was just experiencing luck or a specific market environment that made them profitable. Big wins can also be just the results of risking too much capital but being on the right side of a move, the results could also be a blow up if it was bad risk management with position sizing that lead to those gains. When good results come from a bad trading process the results do not stay good long term. Bad results that happen while following a good trading process are usually only in the short term.

A process oriented trend trader has five core beliefs:

  1. The edge that they have in their system will result in profitability in the long term.
  2. They do not let their emotions or egos get caught up in short term results. They understand the randomness of results on shorter time frames.
  3. They understand they only have control over systematic trading execution not trading results.
  4. They are not trying to predict what the market will do in the future they can only control what they will do in the present moment. 
  5. They do not get euphoric with winning trades are depressed with losing trades.

A process oriented trader’s job is not to predict, have an opinion, or prove anything. Their only job is to stick to their rules, take their signals, and follow their process.

Trend trading tips:

  • Once you have a trend trading system your job is to follow it .
  • Focus on the trading process not the trading results.
  • Focus on what you can control.
  • Do not become emotionally moved by wins or losses.
  • Trade position sizes that enable you to follow your trading process without overwhelming stress or emotions.

Steve Burns has been investing in the stock market successfully for over 20 years and has been an active trader for over 14 years. Steve developed eCourses and wrote books to help beginning traders survive their first year in the markets. Read this and more from Steve on his blog NewTraderU. The original article was published here.

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