Managing Trading Decisions with Simple Compliance Checks

 

I want to share a simple process used by a reader in addressing a recurring problem in his trading. I was happy to see him use this approach, because it references a post-session technique I shared quite a few years back.

And perhaps it will be useful to you as well, in ensuring compliance with any changes you wish to make to your trading.

Problem:

With-Trend (WT) trades were providing positive stats but he was consistently giving too much back through his Counter-Trend (CT) trades. The CT trades show some promise so he's not quite willing to abandon them entirely. But he wants to cut back on the number.

So here's the plan:

(a) No CT trades unless the daily P&L is positive.

(b) Aim to ensure that there are more WT trades than CT trades.

The plan for this month is to ensure 100% compliance. Item (a) will avoid his tendency to dig himself into a hole occasionally in fading a trending market. And item (b) will ensure that he is trading (more often than not) in the direction that "should" offer the most opportunity.

One month only. Then reassess.

In particular item (b) because he does recognise that some days are quite rotational and may be better suited to CT trading.

But that's for the future. For this month, 100% compliance. And let's see if that provides improvement to the trading results.

Implementation:

Pre-Session:

  • Reading the plan and making a verbal declaration of intent to comply with both items.

 

In-Session

  • A single sheet of paper with two columns – WT and CT. Place a checkmark after each trade. The aim is to ensure more checkmarks in the WT column than the CT column.

 

Post-Session

  • Addition of two Compliance Check questions to his post-session routine.
    • (1) Were any CT trades taken with P&L at or below zero? If so, why?
    • (2) Did the WT trades outnumber the CT trades? If not, why not?
  • Marking up a calendar with a large green tick if he complied with both items.

 

The use of the calendar is something we discussed here – http://yourtradingcoach.com/trading-business/dont-break-the-chain-a-simple-tool-to-improve-consistency/. The original discussion aimed to ensure consistency in completing each part of your daily routine. What he is doing differently is using this same technique to ensure compliance with desired changes in his decision making. Effectively, using it as a reward or punishment system to guide and shape changes in the way he trades.

I also love the use of green ticks rather than the red crosses we used in the original article. Green ticks provide a more "positive" reinforcement than red crosses.

At Month End:

  • Review the outcome, ideally achieving both WT and CT profits, but at the very least ensuring that CT losses are somewhat contained and do not completely erode the WT profits.
  • Assess the effectiveness of the plan in making positive changes to the trade results.
  • Continue or amend, as required.

 

It's Your Turn to Take Action:

What trading behaviour do you need to reinforce on a daily basis? Is there something you know you need to change, only to find yourself repeating the old behaviour over and over again?

Consider trying a similar process, as described above. Just for a month.

Pre-Session declaration of intent. In-Session tracking to manage your decision making. Post-Session confirmation of compliance and a visual reward system to track your progress.

See if you can keep those green ticks going for the whole month!

It only adds a couple of minutes to your trading routines. But if it can help to reshape your behaviour away from destructive practices, then the benefits could be priceless.

<image: Managing Trading Decisions with Simple Compliance Checks>

Happy trading,

Lance Beggs

 


 

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YourTradingCoach - Admin

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