Welcome back to "Mind Over Markets," a series designed to give you some practical tips to help you deal with the psychological stresses of trading.
In Part 1, we explored the concept of "asymmetric payoffs," emphasising the potential benefits of small routine changes. Part 2 encouraged us to "Think Big," urging a shift towards considering trades within the broader context of large sample sizes. Now, in the final instalment, we delve into the philosophy of continuous improvement - Kaizen.
Kaizen: The Power of Continuous Improvement
Kaizen is rooted in the belief that small, incremental changes over time lead to significant improvements. It emphasises a mindset of constant reflection, adjustment, and refinement.
Toyota, a trailblazer in applying Kaizen, exemplified its effectiveness through the renowned Toyota Production System (TPS). At its core:
Toyota fostered a culture of continuous improvement, involving every employee in contributing ideas for incremental enhancements. They prioritised waste reduction, targeting inefficiencies, defects, and excess inventory.
Toyota's success illustrates how Kaizen's principles drive innovation, efficiency, and sustained success by emphasising continuous improvement.
Applied to trading, Kaizen encourages traders to view their journey not as a series of isolated trades but as an ongoing cycle of development.
Practical Application to Trading: The Pie Chart Analogy
Imagine the trading process as a pie chart with four equally weighted quarters, representing entry, initial risk management, in-trade management, and review.
Each quarter contains essential components, forming the basis of a holistic trading approach.
The Trading Process
Breaking Down the Pie: Equal Weight, Equal Importance
Entry: Beyond the entry pattern, consider watchlist creation and price alert monitoring. Give equal weight to consistently checking the market for your trade patterns and being alerted when entry conditions are met.
Initial Risk Management: Move beyond stop placement. Determine the percentage of your account at risk per trade, strategize for key events, and manage your approach around market-changing occurrences.
In-Trade Management: Aim to refine an approach which helps to maximize winning trades and cut losses early. Address crucial questions about your trade management and include market shock contingency planning, preparing for unforeseen events.
Review: Acknowledge the importance of data collection, analysis, and trade journaling. Each is a vital slice, providing insights into your strategy's strengths and areas needing improvement.
The Cycle of Continuous Improvement
The Virtuous Cycle: Equal Time, Equal Progress
The challenge is to dedicate equal time and attention to each aspect of the trading pie. Kaizen advocates embracing the process over fixating on individual outcomes. Just as every slice contributes to the whole pie, each trading element plays a role in your success.
Bringing It Back to Kaizen: Focus on the Journey
By maintaining a balanced focus on every part of the trading process, you turn it into a virtuous cycle. The Kaizen philosophy urges you to continually reflect, refine, and evolve. Success becomes a natural byproduct of consistent, mindful efforts, and the journey itself becomes the focal point.
In the realm of trading, where the allure often lies in the excitement of individual trades, Kaizen redirects attention to the broader perspective. Embrace the philosophy, see your trading journey as an ongoing cycle of improvement, and watch as small, intentional changes accumulate into significant, lasting success.
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 84.01% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
In Part 1, we explored the concept of "asymmetric payoffs," emphasising the potential benefits of small routine changes. Part 2 encouraged us to "Think Big," urging a shift towards considering trades within the broader context of large sample sizes. Now, in the final instalment, we delve into the philosophy of continuous improvement - Kaizen.
Kaizen: The Power of Continuous Improvement
Kaizen is rooted in the belief that small, incremental changes over time lead to significant improvements. It emphasises a mindset of constant reflection, adjustment, and refinement.
Toyota, a trailblazer in applying Kaizen, exemplified its effectiveness through the renowned Toyota Production System (TPS). At its core:
Toyota fostered a culture of continuous improvement, involving every employee in contributing ideas for incremental enhancements. They prioritised waste reduction, targeting inefficiencies, defects, and excess inventory.
Toyota's success illustrates how Kaizen's principles drive innovation, efficiency, and sustained success by emphasising continuous improvement.
Applied to trading, Kaizen encourages traders to view their journey not as a series of isolated trades but as an ongoing cycle of development.
Practical Application to Trading: The Pie Chart Analogy
Imagine the trading process as a pie chart with four equally weighted quarters, representing entry, initial risk management, in-trade management, and review.
Each quarter contains essential components, forming the basis of a holistic trading approach.
The Trading Process
Breaking Down the Pie: Equal Weight, Equal Importance
Entry: Beyond the entry pattern, consider watchlist creation and price alert monitoring. Give equal weight to consistently checking the market for your trade patterns and being alerted when entry conditions are met.
Initial Risk Management: Move beyond stop placement. Determine the percentage of your account at risk per trade, strategize for key events, and manage your approach around market-changing occurrences.
In-Trade Management: Aim to refine an approach which helps to maximize winning trades and cut losses early. Address crucial questions about your trade management and include market shock contingency planning, preparing for unforeseen events.
Review: Acknowledge the importance of data collection, analysis, and trade journaling. Each is a vital slice, providing insights into your strategy's strengths and areas needing improvement.
The Cycle of Continuous Improvement
The Virtuous Cycle: Equal Time, Equal Progress
The challenge is to dedicate equal time and attention to each aspect of the trading pie. Kaizen advocates embracing the process over fixating on individual outcomes. Just as every slice contributes to the whole pie, each trading element plays a role in your success.
Bringing It Back to Kaizen: Focus on the Journey
By maintaining a balanced focus on every part of the trading process, you turn it into a virtuous cycle. The Kaizen philosophy urges you to continually reflect, refine, and evolve. Success becomes a natural byproduct of consistent, mindful efforts, and the journey itself becomes the focal point.
In the realm of trading, where the allure often lies in the excitement of individual trades, Kaizen redirects attention to the broader perspective. Embrace the philosophy, see your trading journey as an ongoing cycle of improvement, and watch as small, intentional changes accumulate into significant, lasting success.
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 84.01% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.