In all our endeavours in life, preparation before hand is vitally important. This applies to business, sport, trading and everything else that we do in both our personal and business lives. Those that take the necessary steps to learn and prepare themselves prior to an event generally have not only a much higher chance of success, but tend to enjoy themselves more. This is because they have prepared themselves for not only the best case, but also the worst case scenario’s, and can work through these when they arise. A friend of mine recently competed in a 24 hour mountain bike race – a true endurance test of both body and mind. For us, that seems like an incredibly weird thing to do, riding a bike from lunch time Saturday, through the night, and finishing at lunch time on Sunday. Lacking sleep, fighting the demons of fatigue and exhaustion, and pushing both body and mind to the outer limits of their endurance capabilities.
But, my friend loves it and can undertake these events because he is prepared for them. Not only through physically training, but also through mental preparation. Thinking through the range of probabilities that can occur and having a plan in place to deal with them when and if they arise. From the simple things like carrying a rain jacket in case it rains, to recognising the symptoms of fatigue and what to do firstly to prevent it, and secondly how to deal with it at 3.30am in the morning when it’s 3 degree’s and your mind is screaming at you to ride back to the tent and have a sleep.
To achieve this feat, he has processes in place. He has a training regime that builds slowly, adding extra distance each week to the length of each training ride. He then slowly adds in some night riding practice, again increasing this each week. He has a strict dietary program, and is meticulous with monitoring calorie and protein intake. He has performance measures – testing himself against others, as well as against his own parameters. He monitors himself for fatigue and is careful to rest when he needs to. And, he is careful not to crash and suffer serious injury, as that would spoil all the fun. In short, he prepares himself well in advance of each event and knows what to do, when to do it, and how to do it. He is also a trader, and reckons the two are pretty similar.
Traders need to be prepared. They need to have processes in place to enhance this preparation. Knowing and understanding the range of probabilities of your system is preparation. Knowing and accepting that it will have winning trades, losing trades, drawdowns, make new equity highs and have winning and losing streaks is preparation. This knowledge provides you with a full understanding of the system and how it will perform.
Having a disciplined process is preparation. A daily routine for running scans, entering and exiting trades as required, monitoring open positions, and recording all the results and ‘numbers’ of the trades is preparation.
Monitoring the performance of the system against others, or against a personal benchmark is preparation. By comparing this information you can monitor where you are ‘at’ when compared to other traders, against industry averages, and against the goals you have set to achieve.
Staying fit and healthy is preparation. You can’t perform at your optimum level or make balanced decisions if you are tired and rundown. Trading requires us to remain alert and disciplined in all that we do. This is difficult if we are feeling unhealthy or ill. Adequate rest and relaxation is very important.
Having exit strategies in place is preparation. Crashing out of the game is not an option. You can’t win it if you’re not in it. If you burn through your capital as a result of a series of large losing trades, or through having no money management or risk management procedures in place, you can’t participate in the winning trades when they come along.
Analogies are often drawn between sport and trading. The key to success in both is preparation of knowledge, processes and monitoring. By preparing ourselves mentally and physically for what the markets throw at us, we can, like my bike riding friend, endure the tough times and make it through to experience the good times.