"You feel you have to do well and you haven't got any control of this daunting thing going on. You can train hard, you can give everything youv'e got on the day. But you cant't control the outcome and your'e never going to feel any more pressure than in that moment."
Victoria Pendleton, GB Cyclist, Olympic Champion 2008, 8 World Titles
What is a good trading decision?
Have you ever stopped to consider that question?
The interesting next question is ... Do you judge the quality of a decision by its outcome, or by its process?
Most people instinctively judge the quality of their trading decisions by the outcomes that they get - winning trades and losing trades. However, in trading your decisions are, as Michael Mauboussin states in 'Think Twice' a combination of your approach to the decision (preparation and research), the actions you took and also some 'luck' (randomness). It is quite possible to follow a solid and proven decision making process and yet lose on a trade; and likewise it is quite possible to implement a flawed decision making process and have a winning trade.
Which is better - a good process that loses or a flawed process that wins?
Imagine you are in the casino playing blackjack. You are dealt 18. You choose to draw and are dealt a 3 and win. You feel great and your strategy of drawing a card on 18 is remembered as a 'winning approach', despite the fact that it is statistically not the best strategy in the long run.
You can view your decision outcomes in terms of four possible outcomes:
A good decision making process AND wins
A good decision making process AND loses
A flawed decision making process AND wins
A flawed decision making process AND loses
To reinforce good decision making behaviour AND to trade with probabilities in your favour you will want to be aiming for either of the top two outcomes. Winning when your process was flawed is a short term gain with long term negative implications; and losing with a flawed decision making process is usually just expensive.
Focus on your decision making process, develop your decision making skills, control the controllables and you will reduce the pressure and manage the challenge of uncertainty more effectively, and perform better in the long run.
Until next time...