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Tuesday, April 13, 2010

Framework for Improvement

This post summarizes how this blog provides me with a framework for improvement.  A listing and explanation of this blog's components can be found at the end of this post.

Whenever you have to set a goal for yourself, it is critically important to lay out a game plan on how to achieve that goal.  Often without a game plan or strategy, you will fail to achieve the goal because of a lack of focus, direction, and feedback.  Throughout the blogosphere and in many books, traders often list the importance of a trading journal and documenting one's progress.  A trading journal is a valuable tool that helps a trader remain focused on his objectives and provides performance feedback.  A trading journal is a single component of what I call the "Framework for Improvement".

Framework for Improvement
A framework for improvement encompasses all the things that a person does that allows the person to progress towards a goal.  This often involves strategy, documentation, and constant performance evaluation.

Strategy
The first major component of a framework for improvement is a strategy.  This is a clearly defined path breaking down the major goal into smaller, minor goals along with specified dates for completion. This will allow you to focus your attention on each sub-component of your major goal without straying from your intended path.  A strategy also helps make major goals more achievable by breaking it into smaller accomplishments. 

Marathon training is an excellent example of effective strategy.  A person will set a goal of completing a marathon, which can seem incredibly overwhelming to the average person.  Most people can barely run a mile, so they immediately think that it would be impossible for them to run 26.2 miles.  This is a fair assumption because their bodies and their minds are not conditioned for that distance at the start of training.  But therein lies the power of good strategy: if you can run one mile, you can run 26.2 miles.  With the correct training regimen, a runner can break the marathon into smaller, weekly training goals.  The initial focus should not be completing 26.2 miles, but instead they should be focused on completed their weekly training.  This week I will run 1 mile, next week I will run 1.5 miles, etc.  Continuously building in small steps will help make the goal more attainable and improve the chances of success.

Documentation
The second component of a framework for improvement is documentation.  It can take on any form such as notes in a journal, charts in a spreadsheet, files in a folder, etc.  The point of documentation is to record where you have been and what you have accomplished.  This will help you avoid repeating tasks you have already completed.  Good documentation will also serve as an archive, so that you can easily review the results of previous tasks. 

In undergrad, my first research advisor made me keep research journals of everything I accomplished.  I wrote down everything I did in a composition book including various hypotheses, program languages, charts of results, software instructions.  I would review my work with my advisor every week, showing him my journal entries.  It was an invaluable tool because it kept me focused on a solution.  My research efforts were efficient because I did not repeat previous work.  By the time I had to write my senior thesis, it was easy to transfer the work I had already done in my journals.  In fact, the most valuable thing I learned from my thesis research was utilizing research journals.  I still have those journals as a reminder.

Evaluation
The third component of a framework for improvement is evaluation.  Evaluation lets you know if you are making progress.  Evaluation can take on many forms such as an instructor, mentor, coach, chart, etc.  Without evaluating how much you have accomplished and how well you have performed, you will have no idea if you are taking steps forward or backward.  The more often you evaluate your performance, the less chance you will stray from your path.  If you hold yourself accountable on a frequent basis, the more you are likely to achieve in a given period. 

My family has spent most of their lives battling obesity.  Question: how do you get to be 100 pounds overweight?  Answer: one pound at a time.  I realized that obesity was a problem for my family a long time ago, so I watch what I eat and I am constantly exercising.  In addition to these things, I weigh myself everyday.  I measure my weight, body fat percentage, and lean body mass on a daily basis.  This may seem excessive, but it gives me constant feedback on my weight.  I know how much my weight can fluctuate in a day/week due to how much water I drink, what kind of foods I eat, how much I workout, and whether or not I went to the bathroom.  I know there are certain times of the year I lose weight easily and other times when I put on weight easily.  For me it is fun to track the numbers, but the daily feedback allows me to adjust my habits at the first sign of weight gain.  This system works for me and it is how I have maintained a healthy weight since college.

Summary of Path to Trading Components
I use this blog to track my accomplishments and progress towards becoming a professional trader.  I wanted to briefly describe the components of my framework for improvement.
  • Research Schedule - I have created a schedule that summarizes the activities I wish to accomplish. There are all sorts of things on my schedule from books I want to read, backtests I want to perform, programs I want to write, etc. The schedule contains monthly goals for the next six months and is updated and expanded as I progress.
  • Blog Posts - I am constantly reading trading blogs.  There is a ton of garbage on the web, and it took some time to find quality blogs that provide content that can help me develop my trading abilities.  Now I read about 30-40 blog posts a day from respected writers.  This provides a continuous flow of new ideas.  I mark the posts I think are most useful, and i categorize them into the following topics: Backtest, Development, Indicators, Interview, Psychology, Strategy, Summary, and Systems.
  • Blog Archive - Once the important posts are categorized, I archive the posts in my email account.  This has generated a huge database of useful information that I can search at anytime.  For instance, if I want to evaluate a new indicator, I can search my indicator posts for fresh ideas.  If i feel like I need motivation, I can search the interview posts and review the development of other traders.  If I am taking profits too quickly, I can search the psychology or development posts to try and find a solution.  It has become a powerful resource that rejuvenates me and helps keep my ideas fresh.
  • Market Breadth Indicators Spreadsheet - Each day I update my Excel spreadsheet with market metrics (close, high/lows, moving averages, advancers/decliners, indicators, etc.).  This spreadsheet is my research lab where I can experiment with measures of market breadth or indicators.  I program macros and make plots of various metrics, keeping what I think is useful and discarding what is not.
  • SPY and IWM Intraday Activity - I will try to follow the intraday behavior of the market as often as my job will permit me.  Different markets have different tendencies and behaviors.  Monitoring the intraday activity gives me a different perspective on the markets, helps familiarize me with their behaviors, and provides a frequent opportunity to track order flow using technical analysis.
  • StockTwits Daily Feed - Market activity is the summation of a fortune of ideas, and StockTwits helps me monitor the pulse of this activity.  It provides constant communication from traders with differing views of the market, trading styles, and trading vehicles.
  • Daily Accomplishment Posts - Recording my daily accomplishments on this blog keeps me accountable for my actions on a daily basis.  This helps provide added motivation on the busy days to try and accomplish at least one task.
  • Monthly Objective Posts - These posts set my monthly goals and allow me to evaluate my performance on a monthly basis.  I can see which areas I am neglecting and which areas have been focusing most of my energy.  The objective posts also allow me to budget my time more effectively by providing me with an accurate estimate of how much work I can accomplish in a month.
  • Lessons Learned Posts - We should always try to improve ourselves.  We should not only learn from our own actions, but we should also learn from those who have already walked the same path.  The lessons learned posts makes me focus on the advice and experience of others, which will hopefully help me avoid the mistakes which others have made during their experience.
  • Backtest Posts - These posts summarize my research on different trading strategies.  The style has spawned from Rob Hanna's Quantifiable Edges blog.  he really opened up my eyes to the power of backtesting.  I love using math to model complex problems.  I will let the numbers in these posts speak for themselves.
  • Market Reports - Sector performance has been shown to be a significant contributor to individual stock performance.  The Market Report tracks market/sector behavior and is updated daily.  The report identifies current trends and attempts to identify developing trends.  In time, the report will be expanded and modified to include other market indicators.
  • Trading Tools - This is a collection of various programs designed to help a trader develop better skills and improve performance.

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