Practice

What does practice look like in trading and investing?

This is a very interesting question for any trader or PM who is looking to improve their performance.

If the goal is the development of trading/investing skill, then the first question to address of course is what is the skill in trading/investing?

Trading/investing are activities where the outcomes you get are a result not just of your skill, knowledge and strategy execution, but also the role that luck/randomness plays.

Skill + Luck = Outcome

‘In activities where luck plays a strong role, the focus must be on process’ - Michael Mauboussin, ‘The Success Equation’

If the focus is process, then perhaps the skills to develop in trading/investing are the development of an effective trading/investing process, and your ability to be able to execute it consistently, under a variety of changing and challenging contexts.

Therefore, practice could take the form of developing and improving your process (working on preparation, idea generation, execution, position management, risk management, exits, evaluation), and also on working on your self (skills, knowledge, psychology, physiology).

It could take the form of dedicating some time to researching and testing ideas and strategies, setting goals to work on a specific component of your trade execution such as position exits, reading and researching, going on a training course to develop your knowledge of techical analysis, practicing meditation or mental imagery.

It could also take the form of journalling, reviewing and reflecting on your decisions and performance, looking for insights, and taking action to improve.

The challenge for traders and PM's is balancing play and practice.

Sports has time between events for practice away from competition and a dedicated offseason. Aviators have scheduled required courses and simulator time away from flying time. Chess players practice between playing tournaments. Musicians can practice and rehearse away from playing live concerts.

Traders and Investors do not have the luxury of a dedicated off-season, or scheduled practice sessions away from the live markets.

Discipline is required to dedicate time for practice, and to build effective practice habits.

What are you doing to practice and improve your trading/investing decision making and performance?

Steve