5 Pillars of Trading Success

Merritt BlackFutures

These five pillars will help your trading consistency, which should be your ultimate goal.

Interestingly enough, the 5 pillars of trading success have nothing to do with the actual act of trading or even analyzing markets. They involve the work that goes into developing into a trader, as well as developing as a trader. The trades you end up making are simply a culmination of your preparation and your process for doing so. I challenge you to stop along the way during this article and challenge your own routines and processes. For those that haven’t already moved on to find the next sexy indicator for sale, let’s dive in.

  1. Premarket Prep – Can you imagine any great endeavor in the world where prepping immediately before the activity is not necessary? Do you want your surgeon prepping before operating? Do you want your pilot prepping before takeoff? Your trading should be no different. So many “traders” wake up, grab a cup of coffee, and fire up the charts. This is very sad. How serious are you about prepping everything from your charts to your self?
  2. Journaling – If you agree with me that it’s human nature to protect our own ego and self-worth, then you’ll agree with the following. Really be open minded here: If you do not have a documented account of what you were thinking, feeling, considering doing, or doing at any given point during the trading session, then the majority of the truth of what happened will be LOST to you. At the end of the session you will not remember things, your mind will even attempt to prevent pain and avoid facing truths. You will justify things, use hindsight to your advantage, and ultimately lie to yourself. Journal what you’re thinking and feeling. Journal why you do everything you do. This will become as valuable as gold to you I can assure you. Timestamp the journal entries. Do this and grow tenfold.
  3. Review – Remember all those performance activities that prepped prior to their time to perform? Guess what, they also review afterwards. As a tennis player, I can’t tell you how eye opening and helpful it was to review film of myself playing. NFL teams gather after game day to review film. Things are starting to come together now. Remember that journaling we need to do? Oh yeah. Having that timestamped account of what we were actually thinking and doing at the hard right edge of the chart… that’s going to start to pay dividends as we review our session. What did we do well? Don’t forget that positive one- many traders only focus on the negatives. Know what you’re doing well. Also look at what you did poorly, what were you thinking at the time? What was your rationale at the time? What was your mind focused on? What should it have been focused on? How can you structure your trading going forward to help keep you focused on the right variables? Not only should we review good/bad decisions made, but also consider if we missed any opportunities. Don’t just look at a chart that went up a lot and say, “Oh yeah, I should have been long!” No no. Remember we must have a higher standard, we must not lie to ourselves about what we can and cannot do. Was this particular up move an opportunity according to how you define trade opportunity? There’s a big difference between a true missed trade versus a market move that was simply not a trade for you. Review your sessions, and grow twenty-fold.
  4. Statistics – You are keeping at least basic stats on your trading right? You do understand that trading comes down to having a statistical edge right? You do know that an edge is derived from two main things… how often your trades are right (win percentage), and the ratio of your average winning trade to your average losing trade, right? It’s the tug-of-war between Win% and Win:Loss ratio that tells us just about everything we need to know about our trading performance. Have an understanding of these two things. Know how they evolve over time, over decent sample size. How these drift over time tells you exactly what is going on with your trading, or how markets are changing. Don’t get attached to any stats as an intraday trader of less than a 20-trade sample size. Keep your stats basic until you have shown through journaling and review that you are at least in control of your trading.
  5. Process – This is a biggie. Process permeates through each of these. Imagine a big PROCESS in the middle and then preparation, journaling, review, and stats all around. In one sense we can have a process for doing each of the prior 4 pillars. In another sense, we can say that our trading process is a set of guidelines, checklists, rules, etc for making trading decisions. This is true and of utmost importance for a discretionary trader. It’s a form of mental toughness really- it allows me something to lean on for decision-making when my emotions could be running high. There’s a third way we can use the term process for a trader though, and that’s where I want us to focus. For me, process in trading is more of a way of life. It’s a mentality. It guides each and every day by the use of process goals – something I want to get better at and execute well this day, not tomorrow, not someday, but today. I’m sold out to this way of trading. 95% of traders out there just want to be better, but they do not come up with a way of practicing and putting extreme emphasis on specific skill development. Having a daily process goal will fix this immediately.

It all comes full circle. In fact, this entire 5 pillar thing is so intertwined that I don’t know where the process begins or ends. Each morning my premarket prep involves preparing to execute according to my process goal which was set the prior day during my review session, which was largely derived from what happened in my journal that prior day during the session. The stats is akin to a car on a journey making a left or right turn, while the rest of this is more like the tiny adjustments we make constantly as a part of driving.

Use all 5 pillars in strong harmony, and watch your trading consistency blossom. Fifty-fold!


*No relevant positions.