“Proper preparation prevents poor performance.” ― James Baker
It sounds like a clichè. And yet so many aspiring (and experienced) traders really fail to appreciate what exactly “proper preparation” means. Initially, I failed miserably to appreciate the functional aspects of proper preparation. Sure, everyone can envision Roger Federer as he gracefully caresses the tennis ball, sending it back to his adversary with a different spin, speed and direction each time. But how many people actually know how many hours of proper preparation went into these seemingly natural movements? Furthermore, how many people actually have the internal strength to persevere and put in the required work?
And this, I have learned, is where the cookie crumbles. This was a clear turning point in my trading career: the moment I realized that only by continuously practicing proper preparation, can you prevent poor performance. And it takes passion (the 7th P) to make it.
Practicing Proper Preparation with Passion Prevents Poor Performance
So let’s break the phrase down into it’s building blocks and analyze them one by one.
It’s the difference between training and education. Training is practical, on the job. Education is theoretical, knowledge-based. Practice means “doing” something and obtaining feedback. Trading does require education of course, but in my own experience, the education part sometimes takes over. Usually the cycle we need to remove goes something like this:
– Scour the internet for quality education
– Devour books on trading (often spending a small fortune)
– Demo trade concepts picked up during the education period
– Lack of success or unsatisfactory results
– Back to studying…
Books & education. A great starting point but then it also needs consistent practice.
..and then frustration starts to sneak up on us. So what’s wrong? Did we not “practice” with the demo? Did we not receive feedback? Is that not proof we need to continue our education process? The answer is…it depends.
We are used to picking up trading books & trading education like we do a “self-help” book: searching for answers and “how-to’s”. Unfortunately the answers that we really need simply aren’t there. Many aspiring traders – much like myself – want answers to questions like:
– Why did the moving average hold this time, and not last time?
– Why should this breakout work, as opposed to others?
– Out of all the ways to trade, which one is the most powerful?
– How long will it take me to become a millionaire trading?
Yes, this was drawn years ago in a moment of frustration…
Questions like these are quite superficial and any kind of practice done by superficially applying entry tactics or thinking about the potential profits will likely drive you insane.
So what kind of practice is useful? Proper Practice.
Appropriate, adequate, in line with your objectives. If you want to become a professional pianist, would you spend hours in the gym pumping iron? Probably not. And yet when it comes to trading, most people really have trouble doing appropriate actions.
– If your objective is to trade trends, you need to practice being patient. You need to practice “sitting” and “waiting” for your trade to develop. And this is one of the main differences between successful market participants and unsuccessful ones: patience. Many aspiring traders are out there to make money quickly and easily. So if they fail, we need to invert the process: practice being patient, and expect a bit of hard work.
– If your objective is to trade trends, you need to understand what a trend is. So you need to practice recognizing trends. Then you will need to practice discipline: staying flat in the absence of trends, and being active when there are trends. Ignoring anything that is not top quality.
– If your objective is to play pullbacks or breakouts in line with the trend, you need to understand what conditions are optimal for a pullback (and even some basic education on peaks & troughs can work) and then train your eyes to recognize high probability pullbacks in the direction of an established move.
– If your objective is to become a professional trader, then practice taking losses like a champion. Cut them. Keep them small. Make sure they are not just small in financial terms but small also in psychological terms. You don’t have to “accept” losses – you just have to manage them well.
– Above all, if your objective is to become a professional trader, then practice letting go of certainty. This means having the courage to follow your studies and your “model” that is being developed, knowing that once you are in the market with a position, anything can happen. You cannot control what happens. You need to practice managing the various outcomes and managing your own personal response to the various outcomes.
And it’s so easy to be derailed. The day to day endeavours, stress, emotions, lack of energy…everything and anything can take our focus away from our objectives and lure us into temptation. What kind of temptation?
– Remaining in the comfort zone of analyzing the market until you find the Holy Grail, and not trading the market;
– Constantly changing trading method (usually just because of a couple of consecutive losses);
– Treating the demo like a game, instead of using it as a useful “simulator” to apply knowledge and record results;
So remain focused. Proper Practice is that group of specific actions that help you work towards specific goals .
How do you get to proper practice? Through adequate preparation. The steps you need to take in order to reach your goals. Sometimes the goal seems to big…so break it down into smaller steps! This is the part we can also call “targeted education”.
For example, if we want to trade trends we need to prepare ourselves for that task. This requires:
– Understanding when a trend is potentially starting and when it is potentially ending
– Understanding what drives trends in the first place
– Understanding what kind of entries to use depending on the market’s behaviour
– Understanding how to manage the trade once it’s on, depending on how the market reacts
– Understanding how to place the stop loss order, whether a trailing stop is adequate
In essence, we specialize and attempt to understand what we are doing. When we trade, we are up against participants that have potentially decades’ worth of experience, contacts, and capitalization in their favour. So unless we have gone through the motions, and have practiced proper preparation, we cannot stand up to the test.
Avoid negative outcomes. But losses are not the negative outcome we need to avoid. Because losses cannot be avoided. What we need to prevent is:
– Trading without a plan
– Scalping (if our objective is to trade trends)
– Taking losses personally
– Making trading the center of our life
– Losing faith in ourselves and blindly following others
In trading, the only thing that can actually be poor is our behaviour. We need to be in the zone when we trade, both physically and psychologically. Why settle for something poor when you can have something better?
– Why take a single loss personally, and let it ruin your day?
– Why get euphoric over a win, only to jump back in the market with a touch of overconfidence, and see the market take that win back?
– Why look for trades, if none are evidently staring at you?
– Why sit down at the screens if you’re going through a rough patch in life?
– Why sit down to trade if you have the flu?
By paying attention to poor behaviour we can limit the moments when we are not in the zone, not healthy, not focused, and can simply spend our time wisely and not risk our hard earned capital.
From the latin term “praestatio”, it means literally “guarantee” and more in general a result obtained with one’s own capacity. The definition is perfectly in line with the real requirements for successful trading: introspection.
Whether you listen to professional athletes or professional traders the common denominator is the importance of your own actions. And how do we make sure we stick to the good routines and create new habits that allow us to tackle the markets consistently?
Passion trumps discipline. Short term benefits can be gratifying, despite being are traps in the long term. In the old world, an egg today is better than a hen tomorrow. But in our modern world, where this is no longer necessary, instinctual habits no longer work. Deferred gratification is what it’s about. And only a great deal of passion can help you overcome the obstacles that get in the way.
And that’s why the most successful market participants are usually passionate about the markets. They don’t do it for the money. The money follows. The lifestyle follows. They do it because they love the game, period.
About the Author
Justin Paolini is a Forex trader and member of the team at www.fxrenew.com, a provider of Forex signals from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.