Episode 9 - Focusing on Process vs Outcomes with FuturesTrader71

Trading futures carries a high degree of risk. It may not be suitable for all investors. Pass performance is not indicative of future results. What's up everyone, it's Ian. Don't hit that skip button because you don't want to miss what I have to tell you. Edge clear, the brokerage I work for and who makes this all possible has launched an awesome trading platform, Edge Pro X. Edge Pro X includes features like an advanced step-the-market TPO charts, volume profiling tools, and order heatmap, built-in replay and simulation mode and much more. Check it out today by visiting edgeprox.com. That's edgeprx.com and signing up for a 14-day free trial. Hello and welcome to Behind the Screens. I'm your host Ian Blanky and on today's episode I'm joined by Mr. Morad Ask Our AKA Futures Trader 71. We're at How've you been? Good, thanks for having me on again. Yeah, of course. Thank you as always for joining me. These episodes get some really good feedback. So I'm glad to hear that our listeners are enjoying these mini-sodes as we call them. And hopefully it's helping a lot of people break down and really analyze their trading, get into what we're going to talk about today, which is focusing on your process and not necessarily the outcome of every single trade. Because personally, I think if you do that, you're going to drive yourself insane. And I am also fairly terrible at focusing on the process of trading versus the outcomes of the trades. So what do we mean when we say process Morad? In other words, like how do you prepare before your trading day? Let's start there. So to me, this is a very interesting topic because it's so seldom talked about and it's so key to a person's potential success. You know, when you approach a professional athlete, someone who is really great at their sport, you know, the late Kobe Bryant or something, he probably won't discuss that big jump shot that got the championship or whatever. If you ask what made him what he is at that point in time, chances are he'll talk a lot about the support he's gotten, the work he's put in, the coaches he's had. In other words, it all happens off the court. It doesn't happen on the court. What happens on the court is what we measure. It's the tip of the iceberg, but the bulk of the mass is underneath the water and we don't see that. And that's what process is. Process is the foundation that allows us to get in there and simply execute what we have set out to execute. Without process, we'll find ourselves wishy-washy and waffling throughout the day, maybe getting lost and maybe being very influenced and prone to errors, you know, influenced by others, you know, we get long, our buddy on Skype says, "Hey, I just got short, all of a sudden we're closing the long and that's the winning trade." So process is everything that occurs before we click the mouse in the live market. It's everything about trading other than the actual execution. I think that's pretty much what encapsulates the definition of process. Yeah, yeah, I think, you know, outside of sports, what's the saying that you were an engineer? 99% of the building is, or 100% of the building is 99% of the plan, something like that. I probably put your debt. Yeah, I don't remember what that particular adage is, but it's true. Another analogy to this is you spend two hours preparing the perfect meal, but only 10 minutes to eat it. You know, what we focus on, how it was like to eat it, but really the work, the essence of it is in the preparation. And this gets very little tension. I've been doing us a while, I've been doing us publicly for about 13 years, and nobody ever talks about prep. Yeah, I agree. In fact, when we came up with this topic, I had thought so little about it that I barely even incorporated or actively think about it in my own homework setups, all of that preparation that goes into it. So for you, what does it look like? You know, I mean, we could either go through a typical kind of trading day preparation before the day, your routine. Do you have anything in particular that you always do to make sure that you're, you know, in line in the right headspace? Yeah, you know, it's really important to have a set process. Here, it's something that has made the military as powerful and as effective as it is. It's, you know, you, you, you step out of bed and you make your bed, then you do this, then you do that, whatever they teach you in boot camp in the military, it's very important because we want this process to be as efficient as possible. For me personally, the market closes today. I don't look at the charts at all after the market closes. I couldn't care less at that point. I don't look at the charts. If there's anything I need to know, I know it down while it's fresh, but I leave it to later on in the evening. Here's Chicago time. I show up at my desk again at about eight, eight, 30 p.m. I come to the, I come to my software to my analytics with fresh eyes. I remember what the day was like, but I'm going to cycle through from the highest time frame to the lowest. And the idea is to put together, put back together the narrative and what has happened for the day. That's what's important. And because of the way I approach trading, I don't use a systematic anything. It's, it's really auction based and it's, it's dependent on my understanding of what the market is trying to do and how good of a job it's doing and so on. So I follow a process to detect what that is. You know, did we test anything significant today? I have a bit of a checklist because that's how I like to operate, have a bit of a checklist. You know, where did we open today? What was the opening type? What was the opening swing? What did it test first? What, where did it fail? Where did it manage, what, what territory in terms of prices that it managed to recapture? How is the volume today? Did, did we do anything significant versus the last week? Are we at all time highs? Is there anything going on in the market that's impacting this? You know, currently yields are driving a lot of what's going on? So that's what I want to factor in. These, it's almost like an investigation. The whole process of, of prep takes about 45 minutes and it can take for some people, it can take two hours. But really, I feel like more than 45 minutes and now I'm getting into too much and really it's just, you know, one of the things I've told someone in the past is if, if, if it's hard for you to see what the market's trying to do, maximize the chart, go to the other side of the room and look at it from a distance and it'll show you very quickly. You'll see very quickly what it's trying to do. It'll be very obvious from that distance that, hey, looks like we're breaking out or it looks like just, you know, choppy garbage. That's basically what I'm trying to detect. And then I follow the basic rules of the volxion theory that markets always seeking balance, balance leads to imbalance, you know, the market's coiling for a while. As soon as the information changes, there's a likely, strong opportunity for a breakout. So I might note that down. But that's what I do. I do it the night before and then I come back the next day. You know, I post a lot of what I do in, you know, I run this company called Convergent Training and I post in the head trader channel. I post that homework. I basically say, here's, here's what I'm looking at and then I come back the next morning, our time here in Chicago and I look at what it did overnight. That only takes about five minutes. Okay, here's what it did. Look, you're up open and this thing sold off immediately. Okay, what is a DAX doing? What is it? Where are the Eurostocks doing? What's the button doing? Really quick on a half hour chart. Just to get an idea of what maybe driving the open force today, note those levels down for on, for example, the product that I'm trading, could the S&P minis or whatever, note down the high and the low and then I do the trader bite at 8am, central 9am Eastern in which I publicly on a live stream for anybody to join on YouTube, I public go over that homework and that takes about 15, 20 minutes where I lay out what we've done yesterday what we expected versus is what happened versus what it's done overnight versus what we're looking for to do today. And I create these scenarios that hey, if it's not able to go up and if it decides to sell off, these are the areas I'm interested in if it sells off and these are the targets. And people don't like that because they think that, hey man, you're forming a bias. You know, that's bad. If you form a bias, you're going to be stuck in it and so on and so forth. And so to me, you're always as a trader, you have to have a bias. It's just a question of a time frame, you know, the weekly bias. You know, like if you're going to go long, implicit in that is you're a bias for higher prices. I mean, what else would you get along? Right. But I like to kind of make a comparison between trading and military operations. You don't send a platoon into the field and say, hey, respond to whatever happens. You don't do that as a general. As a general, you take a map of the land, you look at the territory, you look at the geography, you look at where, what intelligence you have, those are the bars on our chart. And then you you plan out, here's what here's our objective. Here's what I believe our objective is. Here's how we might get what we want out of it. And you lay out a plan, then you have, you know, plan alpha, plan bravo and whatever. And you know, you have your A B and C scenarios. And that's really what I'm coming in with. And what that does is it allows me to hang on during those periods when I might get chopped up. It allows me to hang on because the market, I'm now coming in with a very strong hand. And I'm able to hold through those periods where it just doesn't look like it's doing anything. Sure. Does that sense? Yeah. So what kind of helped you to get into? Because obviously you've had a very storied kind of trading journey to this point and finding that process and your current methodology and all of that. How long would you say it kind of took you to say, hey, you know, whether, and I'm not saying that you never took your trading career seriously, but there had to be times early on. And we've talked about this, you know, in the first podcast we ever did, where you're getting beat up. And how long did it take you to say, hey, look, long term, I need to know that the work I'm putting into this, if I'm taking it seriously should lead to a positive outcome. If it's not, then maybe I need to change the plan, but not necessarily change what I'm doing, which is trying to be a trader. Does that make sense? Yeah. So, you know, I did a webinar on this like, how do you know when to quit? Something like that. And the my experience is a little bit different than many because I came into this as a pro. I traded around pros and you there's a lot of pressure to do something to make it. There wasn't, it wasn't a private account. I'm not sitting, you know, in my private space, taking my time, I had to get it done or I was out of a job. Right. Or you've got some guy screaming at you, I wanted to fire your ass because you're not keeping up the work. Yeah. Exactly. You're tying up resources, you're eating up a seat and you're not making any money back. And there's all this risk that they put out there for you. So it's a little bit different, but it's, it's this, we should have the same expectation of ourselves, even if we're trading, trading privately. How do you know when you should kind of go back to the drawing table and change your process versus continue with what's going on? The way to know is by knowing that you're giving it 100% that you are receiving exactly what you expected and you're executing as you expected, which, why the way is, is a hard thing to get to. It's one of the biggest challenges is just simply executing your plan. But if I'm doing that, if I'm executing my plan and the market's offering me the setups or the conditions to make money and I'm still not making money, that's a problem with your edge. But if, but if, but if, for example, the most more common thing we, we hear from edge clear customers or elsewhere in my travels is, you know, gosh, you know, I knew that today, you know, showed a lot of strength yesterday on the clothes and it held the high yesterday this morning. And I knew I needed to, to, to, to get long. And I just waited and waited and waited. And then I finally got long after it broke out and I took a two tick winner and, you know, it ran off, it ran off to my target and I wasn't on that trade. Well, that's an issue that is you, right? That's not a problem with your edge. And so there's more work that's an error. So there's more work that needs to be done as part of your process to eradicate that error. Versus I can't figure this out or trading is not for me. I mean, if you're not giving 100%, 150% and you're not getting results, then that's on you. The good news is if it's on you, you can do something about it. If it's the market, then you're kind of out of luck and you need to go find something else. Right. Right. And I've certainly had my share, you know, whether it's talking with other traders that we work with at edge clear or me personally, what are the more common things I hear along that line is, you know, someone strings together, two, three, four, five weeks of really good trading, winning trades, they feel like they're really on the ball and then throw it on on one day. And like you just said, you know, if you throw that gain away on one day because you're either swinging for the fences or maybe, you know, you came into the day and you're already groggy or ticked off, whatever it is, you know, that's still part of the learning of process because maybe you weren't able to give it 100% that day and that's why you ended up in a trade that didn't go your way. Not that every trade's going to go your way, but, you know, big losses for me, personally, tended to be on days where either I didn't do my prep all the way because I was tired or whatever. I came into the office, you know, ticked off at something and then you put on a stupid trade and you get frustrated and you almost have to train yourself to be mechanical in your process, which is probably why you have a checklist like that's that's how it has to be, right? You know, if you have that one day where you're giving up your gains for the last five weeks and you're that mad about that day, then it's something that is fixable, but you have to figure out why that was. You have to ask yourself a question here in, am I taking the next action in order to validate how I feel about the last trade that didn't work out or the current market or how I feel about my performance or am I going to take the next action because that's what's going to give me the best probability because it's just a probability, the best probability of a positive outcome, a win. It happens to most people like you said, you come in, you're not feeling so great or you're upset or you're unsettled or you didn't sleep well and you take a bad trade and what happens is now our focus is it's that tilt, right? Our focus now is to fight back. Our focus is to defend our honor, so to speak by showing the market what it need, what that it can't push us around and so your purpose now shifts from just trading what's in front of you and taking the best probabilistic trade that you can put on versus to focusing on just making yourself feel better so that you can move past that loss. I took a short, not lost, okay, I'm going to buy the heck out of this even though it's selling off. So what is your purpose? I mean, going back to your purpose as a trader is very important and most people don't define that by the way, they don't define from the very beginning what it is they're after and so it just becomes this pursuit that's got an open end. Right, right. I mean, that's like, you know, if I always feel like I go back to golf and these some people like to do it, you know, tennis because you're kind of on your own in a way, but I'll go back to golf, right? If my purpose is to go out and try to shoot the best round in my life, but I haven't actually gone to the driving range or played around yet this summer because we can only play really in the summer here in Chicago, that's probably not going to happen. If I go out and I'm expecting to hit my driver, you know, 260 yards and I average hitting it 220, well, what work did I put in to get to that point where I should be expecting that? In other words, it's expecting versus outcomes versus actually following the process to get to that point. Right. Right. Yeah. Yeah. So and I'm not saying that I don't go out there trying to win, you know, shoot my best every round because you want to be a winner, but you know, you have to set reasonable expectations. I guess that goes along with what you're saying, you know, when do you need to revisit maybe your actual edge and your plan versus when can you maybe admit, "Hey, I haven't been giving this 100% and that's part of the problem instead of my edges failing me." Yeah, and that's what process is about. Process is that thing that you go back to to regain your bearings to become centered. For example, I might get interrupted. Something happens, "Oh, I got to go pick up my daughter daycare. She's not feeling well. I bring her home. She goes to sleep and now I'm rushing down to my computer, fire it up. I'm still even though I did my homework last night and I did the Trader Byte that morning. I'm still going to pull the chart back as if the day just started and I'm going to cycle through bar by bar and see if I can pick up what the story has been and where it is." The process allows me to just focus on what the market is yielding versus how I feel. This has a lot to do. Process is what protects you from lack of emotional awareness. Somebody who's very easy to anger or whatever. The process simply brings you back to neutral. It's that checklist that the pilot goes through even when he's being rushed. Here, she's being rushed. They go through a checklist and they do their walk-around so that they can get back to just being a pilot versus bringing whatever it is they dealt with that morning at home, flying an airplane with 280 passengers. The checklist is just the process is that thing that's going to bring you back to what's important and that's something you develop depending on your approach and it's something that you refine and it's a living document. You just keep kind of refining your checklist and adding and taking away things as you grow as a trader. With your analogy with golf, just because you didn't do so while in the last hole doesn't mean that your aim right now is to take your driver and just smash the crap out of that ball to teach it or to make up for the last hole. You have to take the current hole for what it is, the lay of the land and where the bunkers are and where the fairway is and where the flagpole is and all that's you have to take it for what it is right now. It is incredible how difficult that is for people to do. These were human beings, were emotional beings and the goal is to understand that, okay, I'm an emotional person because I'm human and I'm alive and my process in my training process is designed to bring me to what's important. So I'm going to check check for those things that matter to me, check for the distance to the putting green, check for which club I'm going to hit with and so on. That's what we want to get to. This isn't about hitting the ball as hard as you can. This is about resetting and hitting the ball as best as you can and that is a life long as it isn't golf. It is so in trading, that's a life long pursuit, right? Yeah, absolutely. That's one of those things that it, like you said, it always is going to keep taking work and you can't just sort of wing it. If you asked Kobe Bryant, the link will be Bryant, did you take days off or did you kind of just always, once you had done it and once you've become this good, did you just feel like you didn't really need to put in the work anymore? It probably tell you flat out, no, that was never the case. I'm guessing that's the case for you. Obviously, you still stick with your process. Now, do you review, like if you have an error in that trading day, do you review all of your errors still? Or if you have a bad day, do you go back and look at those errors? Are you saying, "Time to focus." I know I had a bad day. Time to focus on the bigger picture for the next trading day, the next opportunity. When a person's inconsistent with their performance, you need to be much more mechanical. There's this kind of what's called the second stage of competence, like this really mechanical kind of grind of doing things. But with me, I know when things are going off, the rails a little bit, I know what the errors are. I've identified six different errors, and I can categorize my errors into those six categories. I know that I just cannot repeat errors. It's errors are very expensive. In my opinion, this is just an opinion, and past performance is not indicative future results. But I would be willing to bet that if we could identify and eliminate errors that traders commit, just that alone. Most traders, my guess, again, this is hypothetical. My guess is most traders would be in a lot better shape and potentially be flat to maybe seeing some sort of an edge in gains. So the issue is generally not, "Hey, I don't have an edge in the market." The issue is I might see an edge. I don't know if I believe in it. I'm not able to execute on it, and I'm struggling to figure out how to really execute on it. So when you have errors, where you have issues or a bad trade that has gone the wrong way, the best thing to do is to just admit that. Just admit that this really did not work out at all. It was just crap. And to go back, if you need to, reset your process. Go back and look at, "Okay, where am I? Where did I expect this to be? What is more likely to happen next? What direction should I align myself in and just sit and wait for the market to give you that whatever it is you're looking for to take the next trade?" And that, again, brings us back to the process, focusing on the process. If I focused on outcomes, I'm already bald, so I'm not going to lose any more hair. But I think I would be a lot more run down. You cannot focus on the outcome, because you had a bad day. And the way I manage this is three trades. If I'm looking to get long and my bias is long and everything's screaming long at me, and I take one long and I get stopped, and I take a second long, and it's another stop out. I have one more shot to take that long. That's it. Otherwise, once I take that third long and it doesn't work, the odds are highly stacked against me that I'm just wrong completely. So three strikes, and that's it. The same guy was for three losing days in a row, ends the week, and so on and so forth, because things work in streaks, and the idea here is the traders. I don't want to be in a bad streak. I want to be in a good streak. So I can't judge that off of one trade. I can't judge that off of two trades, but three trades in a row in the same direction. Or I come in three days in a row, just just hitting a wall. It's time to take the rest of the week off and go do something else. Come in with fresh eyes. Yeah. And that's part of what makes trading, you know, in this part of it, super difficult, because like you said, your beginnings are a little bit different from someone who's just striking it out on their own with their own capital. You know, for us as our own traders, it's our own money, you're basically playing basketball, but you are the coach and the players. And if you're on a shooting streak where you've fired off 20 shots today and they've all missed, you've got to call your own timeout and you've got to take a step back and say, hey, do I need to drop a play here or do I just need to sit out and maybe bench myself for the rest of the game rather than trying to jack up shots that aren't going my way. And trading it is much cheaper to sit out. Much much cheaper. Yeah. Yeah. Well, cool. I don't know that I had anything else. Oh, I did actually have one more question for you. And this probably varies person to person. But would you say that there is a certain sample size of trades that you'd be willing to give a certain strategy? So let's just say you're putting 100% in following the process. Everything as far as the work you're putting in is 100% effort. But the edge just isn't there. What type of sample size do you think you would give that strategy before saying, hey, it's not me. I'm putting 100% in, but maybe it's just the approach I'm taking as far as the trades, the areas I'm looking at and the trades I'm putting on. So somebody did this homework and figured out that statistically speaking with a high confidence interval, meaning 95% or higher statistically speaking, you need about 172 samples of something to have a good idea of whether or not it has edge. Don't know. I don't remember the There's a whole math thing that he went into. I don't remember what it was. To me, I don't know if it's realistic because that would require someone to trade for weeks and weeks and weeks to get that many samples. To me, the minimum is about 50 samples. You have an idea, you wanna check it out, you wanna go trade it in SIM, penalize your limit orders, you know, put them at a tick higher or whatever so that you can get more realistic fills. And don't go live with it without 50 samples. You wanna walk forward, test it on your SIM, 50 samples. You wanna back test it, 50 samples. 50 samples, maybe statistically is a 75% confidence interval, but it's good enough for you to go on board something around it. Set up some trade management rules, risk rules, and just go to work. It's, I wouldn't wait too much for you to do it. Beyond that, you should be able to find out relatively quickly, but I think just because I took three trades and they worked out three times does not mean I have 100% when run rate on this particular trade. You have to have a sample size. And people don't understand the effect of sample size and the fact that you're sitting there being very, very, very, very, very picky about the trades you take. Well, all that's doing is it's hampering your ability to find out if there's really an edge there. You have to go and create a lot of samples to have the confidence that there is something really here. You can't get a 50, 50, you know, fair coin is 50, 50. It has a 50% chance of heads, 50% chance of tails. Well, the 50, 50 probability is for 10,000 flips, I can guarantee that you're not going to get 50, 50 on three flips. It's not going to happen. You're going to, it's going to run the one side of the other, right? So you're going to have two thirds of one and one third of the other. So to get to that 50, 50, which is the edge of a fair coin, you're talking about thousands and thousands of samples. Training is no different. You have to, you really have to participate. My recommendation is to go and participate in a low cost, you know, test it on Sim briefly and go check it out in a micro product or in a small exchange product and see how it works for you in real life. Yeah, I would completely agree with that. That was the last question I had for you, Morad. If there's anything else you wanted to touch on, then speak now. Otherwise, I think we could wrap this up. I would say with the process, it's really important to do today what you need to succeed tomorrow. So build something that you can follow that is the basis of your career as a trader and that you can always fall back on during negative streaks or drawdowns streaks. It's your process that makes or breaks you. It's not what your statistics report or performance report or your clearing statement says. It really is, the edge is in your process. It is not in the outcome of these trades because the outcome is naturally random by the market. So pay attention to process. Yeah, I agree. And I will add one last thing before we sign off here. But I think if you're having a hard time getting back to center, getting back to process that day, whatever it is, life is full of crazy things. And this is probably a whole different episode on balancing yourself and life and making sure that you're coming to every day ready to trade. If you have a hard time doing that, then like Morad said, it is cheaper to sit out and maybe take the day off. You don't have to be in the market all the time. Good point. Cool. Well, thanks as always, Morad. It's a pleasure having you on. And as always, go like review, subscribe, give us five stars. And we look forward to doing the next one of these. Thanks for having me on. All right. Have a good one.