Working with traders on a full-time basis, immersed in the daily realities of trading performance, has provided me with a front-row perspective on trading success. My overarching conclusion from years of coaching effort is that what makes traders good are best practices – sound methods for deploying capital and managing risk. What makes traders great are best processes: detailed routines that turn best practices into consistent habits. Adaptability, creativity, productivity, and self-management: These aren't just things that the best traders have. They are what best traders do– routinely.
The most important review you can conduct is not one of the research literature, but of yourself. If you place your best trading under a microscope, you'll initiate your own review and the chances are good that you'll observe how you best adapt to change, innovate, stay productive, and manage yourself. It is difficult for us to appreciate – especially during times of drawdown – that at some times, in some ways, we already are the traders we hope to become. Our task, in markets as in life, is to uncover the practices and processes that enable us to more consistently tap into the best within us.
Very few challenges are as noble or rewarding as fully becoming who you are at your best. Let the journey begin!
Prelude
I'm not sure when I first focused on the fact that time is an event. There are many events that help us define time, from the Earth's daily rotation to the radiation emitted by cesium atoms. We mark time with such events as birthdays and anniversaries; we think of a year in seasons and holidays. Waking up, eating, going to work, coming home, taking vacations – we live life in event time.
Suppose I am an athlete and my energy level is a function of when and how I practice and perform. Sometimes I practice daily; sometimes I take a day off; sometimes I practice very intensively; sometimes less so. If you were to chart my energy level over time, you'd see irregular ups and downs – seemingly no pattern at all. But suppose you defined time in terms of performance events. Suddenly we would have a new chart – a new x-axis – and regularities would become apparent.
It is November 10, 2014. I am in my kitchen, sitting at the center island, accompanied by the youngest of our four rescue cats, Mia Bella. I have just finished overhauling my market charts, removing time from the x-axes and replacing it with an event clock. Examining past markets, I find striking regularities – ones I had never seen before. Soon I will see if those regularities provide actionable insights in real time.
I've had interesting market ideas in the past. This one feels different, however. It feels like opening an animal crate that has been transported from a rural Kentucky high-kill shelter, picking up the soft, gray, purring kitten, and knowing this is the one.
Someone in the crate area watched Mia cling to my shoulder and commented, “She's chosen you.” That's the way it is with all great things, whether they be life companions, career callings, or paradigm-shifting ideas: They choose you.
But you have to be ready to be selected…
Chapter 1
Best Process #1: Adapting to Change
It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.
Emil's Restaurant
Emil is a chef who purchased a restaurant in a prosperous suburb. The restaurant had not been making money for the past few years despite having a broad menu, a friendly owner, and good standing in the community. The young couples that flocked to the suburb because of its superior public education system, convenient shopping, and low crime rate wanted something other than a traditional, sit-down restaurant. They desired a bit of the city life: a lively venue for eating, drinking, meeting friends, and socializing. The old restaurant was just…too…old…and the owner could not keep pace with shifting diner tastes. So he sold the place to Emil.
Emil spoke with the new area residents to learn more about what they wanted in a restaurant. What he heard was that they wanted “fresh”: fresh food, a fresh look, fresh music. He asked them to name some of their favorite urban hangouts, and then he visited the establishments. What he found was large bar areas with long tables, so that people could mix and mingle easily and share their “small plates.” Few people at those establishments sat down for large entrees and multicourse meals. Rather, it was all about grazing and drinking and mixing with people in an upbeat environment.
Emil recognized that the market had changed. What used to bring in customers no longer was attractive. A growing portion of the dining population desired a social experience, not just a quiet, well-prepared meal. They enjoyed moving around and trying different foods, not sitting and feasting on a single main dish. Creative drinks and lively contemporary sounds were an important part of the experience. The new diners wanted more than the usual background music and traditional beverage selection. They loved upbeat electronic sounds, inventive mixed drinks, craft beers, exotic soft drinks, and a broad selection of unique wines from quality vineyards.
So Emil rebuilt the business. In place of the heavy wooden dining tables and chairs, he purchased modular, colorful seating that could be quickly arranged and rearranged to create a variety of environments, from open bar to sit-down brunch. Gone were the traditional pictures on the walls, replaced by soft, streaming lights that illuminated exotic woods, stone, and glass block. Cutting-edge music videos played on large, hi-def screens, amplified by a high-quality sound system. A fresh website, Twitter feed, and Facebook page alerted diners to the day's upcoming dishes. A photoset of dishes being served was uploaded each day to Instagram and linked to other social media.
Those, however, were not Emil's most radical changes. He decided not to change the old restaurant's menu, but to do away with menus altogether. In place of the traditional fixed menu supplemented with a few “daily specials,” Emil committed to making every dish fresh every day, based on ingredients he could source that morning in local markets. If Emil and staff found a superior catch of fresh fish, excellent cuts of dry-aged beef, and several local fruits and herbs, the evening's dishes featured combinations of those ingredients. Each day, he and his kitchen team created an entirely new menu. The slogan beneath the restaurant logo said it all: “A different restaurant every day.”
Freed from the constraints of a menu, Emil enabled his customers to order from tablets distributed by the wait staff. Now patrons could read detailed descriptions of each dish and its ingredients, enter their orders electronically, and send orders immediately to the kitchen. The tablets were readily available throughout meals, so that diners could order fresh drinks and even share comments about what they liked best and least. Those comments helped subsequent customers make their choices. Diners especially liked reading about suggestions for pairing dishes and beverages. As the comment base grew, the ordering system became a kind of internal social media site, where dining ideas were crowdsourced and regulars developed reputations for their food and drink reviews.
The greatest power of the ordering system was that it created a database for Emil. Over time, he learned what diners liked and didn't like. He discovered that younger males liked different drink/dish combinations than women in their mid-30s. He learned how couples ordered differently from single patrons; he found that the descriptions and pictures of dishes greatly influenced their popularity. Female customers preferred poultry and fish dishes to ones with red meat; older diners looked for quiet tables and several course meals; customers who ordered the most mixed drinks were also the ones who ordered the most specialty coffee beverages. Gradually, the database helped Emil understand which dishes to emphasize and which to eliminate. He created a different restaurant experience on weekend evenings than weekday afternoons: different food, different layout, and different music. Armed with continuous data from customers, he rapidly adapted to shifting tastes.
And the customers? They loved the up-tempo music, the clean modern lines of the décor, and the “cool” ordering app. The website