Know What to Do, Do What You Know – Conclusion

In this piece, I’ll conclude the series.

In “Know What to Do”  I laid out the analysis format for the 4-Phase Framework. With the format in hand, the next step is to determine whether or not your rules have a positive expectancy.There are two steps:

• Step 1: you backtest your rules. You do it (if you have the coding skills) or you outsource the job.

The alternative to backtesting is to take a course from a trusted educator. In this case, you are trusting him to provide you with a set of rules that are profitable over a large sample size.

• Step 2: Once you are satisfied of the viability of your rules, then you apply them real-time. And here, both Money and Mind come into play.
  Money

It always amazes me that newbies neglect this critical leg of the success tripod – Money. In essence, all you have to do is to secure access to a spreadsheet and then, diligently enter each and every trade. Once you do this, you need only to reflect on the results to secure the insights you need to improve your trading.

For example:

You are told that should risk no more than 2% per trade.

Let’s see how this adage works if you have a win rate of 33%, and your nature tolerates losses of no more than 15%

In the snapshot below, you see the theoretical formula that says that a win rate of 33% has a 99% probability of 17 consecutive losses at some point. If you risk 2% per trade, you have a high probability of losing, at some point, 34%. Clearly, the 2% per trade risk would not be suitable for you.

This is the power of keeping an equity journal. You have at your fingertips the necessary tools to collect the requisite information to improve your trading.

Mind

This is by far the most complex of the three legs of the tripod.

Long-time readers will know that I now favour the ACT framework – shown in the snapshot below. I have written at length about ACT. If you’re interested, Google the blog.

Summary

To succeed you need to “know what to do” and “do what you know”. Both need your time effort and money. I have been in this business since the middle 1960s. I still invest in books and courses, and, I still invest the time needed to implement whatever ideas I derive from my education. It’s a game where improvement is never-ending. Also, improvement is not an option but a necessity.

What about you? Are you trying to get by either through no education or by spending money on education but doing little in terms of implementing that education? Or do you belong to the 10% winners who are not only spending the money needed to succeed but also investing their time and effort?

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