Weekend reflection process

a depiction of Sun Wukong wielding his staff (Photo credit: Wikipedia)

RJ: the asker of great questions, asked:

Hi Ken,
Do you have anything written on a weekend review process for a trading journal and trade chart markups?
Double loop learning requires review of work but I don’t have a well-defined process for weekend reviews.
I searched the chatroom and your essays but either didn’t use the right search terms or just didn’t find anything written.
Could you recommend some reading or anything else so I can develop an effective weekend process?
Thank you.
RJ

I replied: Try this on: this is what i find myself doing, over and over until someday I get it right:

0. Center ourselves on who we are and feel gratitude for the gift of life and consciousness to reflect on the wonder that is our Self and the world around us
1. Accept who we are and our desire to improve
2. Review what we aim to know, to do, to be (review goals and objectives)
3. Review the facts about what was done, including detailed performance stats as part of our ongoing study
4. Observe the slope of the trendlines and the volatility of our performance (all our trades and all our actions and all our feelings)
5. Review the forms and checklists to ensure discipline was performed; what did we overlook, where did we take shortcuts, and why?
6. Look for moments arising from the facts that seem to be important, trusting in our intuitions to nominate reflections
7. Follow the trails of reflection, connected to facts
8. Identify the A HA! moments
9. Conduct the 4 part learning journal exercise (A Ha moment, Reflection, Commitment to action, Results)
10. Commit our spirit and self to the next cycle of the wheel of improvement which continues to turn

this is what happens when i start writing after reading from the book of tales of Sun Wukong (The Monkey King)

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Approaching trading as a High Reliability Organization (HRO)

Logo of the United States National Wildfire Coordinating Group. (Photo credit: Wikipedia)

We know from scholarly and popular literature that 90% of new businesses fail in the first five years as an additional 90% fill in the next five years and yet there are groups of organizations that are remarkably successful while operating the most difficult of circumstances when you would expect failure to be the norm. These organizations which thrive in high risk, high uncertainty environments in which failure is catastrophic are collectively known as high reliability organizations (HRO). Scholars have taken a number of different approaches to the subject of HR role in the literature. They have approached it from the disciplines as diverse as: neuropsychology, civil engineering, organizational psychology, sociology, naval aviation and nuclear propulsion.

My own research on decision-making under conditions of uncertainty led me to the scholarly literature on high reliability organizations(HRO) through the approach of social psychology where the two most influential writers are Weick and Sutcliffe from the University of Michigan. They had identified five qualities of HR role that lead to exceptional outperformance and the development of organizational resiliency. Resiliency is an important topic for traders because it describes strategies and resources that help the trader endure through emotionally challenging and training times. Because traders operate under high stress and uncertain conditions all the time, it occurred to me that perhaps the principles of HRO might have some pay off for traders. I was happy to find the important connections that can be of benefit to traders in developing  robust trading plans and emotional resilience.

Weick and Sutcliffe identify five qualities of HRO’s which distinguish them from traditional organizations which traders might seek to develop in their own trading plans:

1) Preoccupation with failure: To avoid failure we must look for it and be sensitive to early signs of failure; not to lay blame but to ensure the plan does not further unravel

2) Reluctance to simplify: Labels and clichés can stop one from looking further into the events; consider the evidence for your beliefs carefully and don’t oversimplify.

3) Sensitivity to operations: Systems  by nature are dynamic and nonlinear; it can be hard to know how the different pieces fit together and how quickly things may change.

4) Commitment to resilience: you must be able to perform during periods of high stress. This means you have to be able to absorb strain,, recover from difficult situations, and then learn and grow from previous episodes.

5) Deference to expertise: This means respecting the evidence of the results and having confidence in the quality of your justified conclusions. These are more important than platitudes and conventional wisdom.

Firefighters are an example of an HRO  in practice that traders can learn a lot from. The National Wildfire Coordinating Group (NWCG) has developed a set of 10 Standard  Fire Orders, which are a logically organized set of rules that have been keeping  firefighters alive and successful in their mission since 1957. They are to be implemented systematically and applied to all fire situations.  They also have identified 18 watch out situations that represent known conditions of especially high risk. These apply equally well to traders as I tried to show below.

Professional Trader Behavior (adapted from the NWCG: http://www.nifc.gov/safety/safety_10ord_18sit.html)

1. Keep informed on market conditions and forecasts.

2. Know what your market and target are doing at all times.

3. Base all actions on current and expected behavior of the market and target.

Market Safety

4. Identify escape routes and safety zones and make them known.

5. Post lookouts when there is possible danger.

6. Be alert. Keep calm. Think clearly. Act decisively.

Organizational Control

7. Maintain prompt communications with your brokers, partners in the market.

8. Give clear instructions and insure they are understood.

9. Maintain control of your trades, orders and decisions at all times.

If 1-9 are considered, then…

10. Trade the market aggressively, having provided for safety first.

The 10 Standard Orders are firm. We don’t break them; we don’t bend them. All traders have the right to a safe environment is.

The 18 Watch Out Situations

1. The market and your target not scouted and sized up.

2. You haven’t planned for or rehearsed this situation.

3. Safety zones and escape routes (protective stops) not identified.

4. Unfamiliar with market and sector factors influencing price behavior

5. Uninformed on strategy, tactics, and hazards.

6. Instructions and assignments not clear.

7. No communication link between traders, brokers and partners

8. Entering trades without predetermined exit points

9. Trading without stops.

10. Chasing a runaway breakout

11. Not being aware of critical states

12. Unaware of broader market condition.

13. Unaware of potential market turning points

14. Price range begins to expand in short term time frame.

15. Change in broad market volatility.

16. Ignoring signals of changing market conditions.

17. Difficult to judge where to play safety stop.

18. Feelings of physical, mental or emotional fatigue.

Note that these are just my own quick interpretations; yours might vary. The exercise in translating from firefighter perspective to that of a trader is definitely worth doing on your own as well. Give it a try!

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Reflecting on pride…

examine the difference between “the source of pride” and “the need for pride”

2 related but quite different feelings that satisfy different needs?

do they arise from different places from within?

we can’t choose our feelings but we can work on breaking the automatic linkage between feelings and action through mindful effort

we can learn to notice the onset of feelings and disengage from the routine. robotic, instinctive follow-on action

we can learn to simply notice the arrival of the feeling and wait for our centered, calm state to re-establish itself and then decide on how to respond with our intentional mind

how can we learn to let the feelings run their course?

How does that compare to a strategy of “controlling” or “preventing emotions”?

How might that skill benefit us as professional consultants?

Victor Frankl has important, timeless things to say on this, as does the Buddha, to name just a couple sages

Tiny little motors

http://www.bbc.co.uk/news/science-environment-14763223

some real cutting edge nanotech application here:  electric motors in a single molecule. The potential for health care is extraordinary

Increase in gold margins as a way to force money into the market to spur the “recovery”

raising the margins on gold is the government’s way of  making it harer for people who can see what they are doing to the currency and the economy to profit.  As a way of comparison, the chart below shows the effects on silver when the same tool was used.

 

weekend report review June 18, 2011

“]

Cover of Sideways [Blu-ray

http://www.youtube.com/watch?v=oxKBpxlGtnE

main themes: playing defense as the bearish trend is now officially strong sdn we are on the boundary of a Volatile Sideways market

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1st hour statistics for high of the day & low of the day

Image via Wikipedia

some analysis in our chatroom today examined hundreds of symbols (ETFs and large cap stocks) that make their high of the day or low of the day in the first hour of trading.  To our surprise there are a considerable number who’s probability of an early high or low of the day is greater than 95%.

That’s a staggering number, especially when we examine how much follow thru after the first hour there can be;  we’ll be working this up into a tarding staregy pretty quickly because we like the odds and the additional control it gives over our trading, once the morning shenanigans at the open are past

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weekend report review link

http://www.youtube.com/watch?v=pfeWwGCytLs weekend report review link

weekend market review, May 07, 2011

Image via Wikipedia

• Market in Bull Normal;  Market is neutral on a short term basis
• Equities sold off this week, but found support near the end of the week
• Commodities cracked this week with silver experiencing a 5 sigma selloff (2d largest 5 day loss in the last 5 years)
• Rebalancing project:
  • Monthly rebalancing : next re-evaluation  on/about  1 June
    • 331 is holding  EWA, MDY, IWM;
    • 631 is holding EWA, MDY, IWM
    • Quarterly rebalancing: next re-evaluation  on/about  1 July. 333 is holding DIA, MDY, IWM;
• ETF2 notes:   adding positions in IHF (healthcare), XBI (biotech), XRT (retail). adjust stops
  • Theoretical exposure is recommended at 60%;
  • model portfolio is at 60%
• You can use this link for adding questions  and/or comments to be addraqessed in the weekly webinar

http://www.surveymonkey.com/s/WeeklyWebinar

 

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Market breakthrough finally

SPY finally broke thru 135 for the first time since mid-Feb.  It remains to be seen if it  can hold above 135, but its been knocking on the door  for weeks.

SLV had its first day of pullback in recent memory. All the metals futures are up and so it remains to be seen how much correction there will actually be