In our planning process, we seek to develop a list of tradeable targets that are in a critical state. In a previous article, I described a critical state as being postured to make larger than normal moves, in either direction, in shorter than average periods of time. We use our set of indicators to identify these through a statistical lens against historical norms.
Once we have a manageable set of potential targets, we enter the preparation phase. Here we develop detailed decision points that offer favorable reward-to-risk ratios that give us the opportunity to see gains larger than our losses with a reasonable win rate, creating favorable positive expectancy. We incorporate a number of different independent lenses that use support and resistance and volatility, among other perspectives, to set up our standard work for our standard patterns.
The idea of standard work for standard conditions is an important way to establish a professional state of mind that gives us the resilience needed to endure the surprise, change, and volatility of market action. Adopting this state of mind is essential when we enter abnormal market conditions where we also want to rely on standard work.
It is natural, and expected, to have different rules for standard work in abnormal conditions, just like we have for normal conditions. The mindset is the same. The emotional state management is the same. What changes are the particular rules for normal work.
This gets us back to having a very clear boundary between normal and abnormal conditions. In my experience, a statistical view of the market is the most reliable, disciplined, and adaptive approach to having a consistent and professional stance with respect to the market’s opportunities.
For me, the importance of repetitions and drills in practice, under realistic conditions, creates the will, discipline, and habits to support disciplined execution. Standardizing our work then allows for a statistical view of our results in order to apply the principles of continuous improvement in a professional way.
When you set up professional norms and standards and apply them to a well-defined professional stance with the markets, you can create the conditions for improved professional performance within your trading plan’s boundaries.
Below is a video recording of our standard nightly debriefing from September 21, 2021, that illustrates a standard approach to getting to closure on the daily trades and preparing for the next day’s work.