I have been knee-deep in creating tools and cheat sheets for traders these past couple of weeks and it got me thinking, why don't unsuccessful traders do this?
The answer... it's not fun.
It's the opposite of what people are told when joining the industry.
Unfortunately, the trading industry has been led by the wrong people, because it's boring.
Instead of highlighting spreadsheets, trading strategy tests, and fundamental teachings, we got fed money, cars, holidays and expensive homes.
Because that is sexy!
Whenever I talk to colleagues, I always say, good trading isn't sexy.
In a few posts previous to this one, I wrote about 5 boring habits that can turn your trading blues around.
One of the habits I missed was the decision tree.
Think Quickly
Traders need the ability to think quickly and often need to make decisions in a split second.
I assume most retail traders do not follow a plan or even know where to start coming up with one.
So I made one...
I did this for myself many moons ago because I was inconsistent and grew frustrated with my trading results.
I needed a tool to fall back on.
This is where I came up with a decision tree.
A process which I can follow in order to keep me in line with bias and strategy.
It helped me follow my plan, understand where I was going wrong, and why my bad trades were bad trades.
Key Components
My decision tree contains components that I deemed helpful to me and my trading, so please feel free to replace these for yourself.
Mindfulness: In this part of my decision tree I like to note down my mental state. For instance, did I sleep well the night before? Am I feeling stressed or distracted? It's important when I am identifying markets to trade that I get into a bit of a zone, if I have multiple plates spinning then my trading decisions may suffer.
Market conditions assessment: This is probably my favourite part because I get to use all my tools at my disposal in order to assess the conditions of the markets on my watchlist.
Trade setup checklist: Here I make sure that the market lines up with my strategy to remain consistent. I make sure that I have marked up any significant factors that could impact my trade or any new developments that make the trade probability fall out of favour.
Risk management: The most important area of my decision tree, here I note my risk, maximum drawdown, goals and targets for the month. I also have notes on what to do in different trade scenarios.
Give it a go
All I will say before closing this one out is give it a go. Take a break from your losing streak, the markets will be there when you come back. Identify how to get better away from the charts. You never know, it could be as simple as adding a process, that changes your outcomes for the better.
