What Traders Can Learn From the World’s Most Successful Companies
What Traders Can Learn From the World’s Most Successful Companies
Yogi Berra once quipped; “You should only buy stocks when they are going higher. If they are not going higher then don’t buy them.” This funny comment is the quintessential problem in all markets. How does one know when something is selling at a low price, so they can buy it and then sell it to someone else at a higher price? In this article, I will show you a path that is not based upon a trading method, but upon the process of executing your method.
What Successful Companies Do To Minimize Errors
Some very large and famous corporations have employed a management philosophy known as Six Sigma. Six Sigma is a philosophy of perfection, or a striving for a lack of defects. It is about process performance, the steps being “Define ‐ Measure ‐ Analyze ‐ Improve – Control.”
Its name is derived from the sixth deviation from the standard, a statistical concept. In plain English this means that for every 1 million products or services delivered by the corporation, only 3.4 of these one million would be defective.
Consider how important such reliability is in the case of a company that analyses blood samples on behalf of doctors needing information for their patients. How could doctors prescribe for their patients, if the sample analyses comes back showing the patients have diabetes or leukemia, when in fact they don’t?
Can Six Sigma Be Applied to Trading?
Over the years I have developed a model for my own trading based on Six Sigma, which evolved out of the need to bring the different aspects of trading into a cohesive unit.
I called the model, Fusion Trading. This model helped me immensely, because it took all the divergent aspects of trading such as
- When to enter,
- When to exit,
- How many contracts,
- Where to put stops,
- What happens if this happens,
- What happens if this doesn’t happen,
- Which time frame should I trade,
- Which news should I listen to, which research analyst is right,
…and dozens more elements that had a bearing on my trade, but which I didn’t know how to integrate.
This model gave me a method to pattern trading efficiently into my mind so as to produce clarity.
A 10-Part Model for Trading Success
To understand the model, I will use an analogy of driving a car to illustrate the model’s principles. The simpler it is to understand, the more likely the trader will grasp it and implement it on the subconscious level. Unfortunately, because the model appears so simple, many people don’t believe it will work, or won’t have the faith to persist in the personalization of the model, which is a vitally necessary step for each trader to undertake. To these skeptics, I ask the question; is driving a car simple? Is it not possible, after gaining some experience, that driving becomes so automatic that one can reach one’s destination without ever thinking consciously about using the brake or gas pedals along the way?
The Fusion Trading Model requires the integration or fusion of the following, ten components. To help you remember each component, I have labeled them the Six M’s and the 4 P’s. So learn to mind your M’s and P’s.
- Mindset: Mindset is both the conscious attitude and autonomous responsiveness that characterizes the trader’s performance ability. Having the correct trading habits is number one in terms of order of priority for success. A trader will succeed or fail, i.e. live or die by his habit patterns.
- Mission: Mission is the trader’s objective, or expectations that he will derive from his trading. These are written down strategies and goals, so that there can be no question as to what the trader’s intentions are. It is just like knowing where you intend to travel to so you can buy the ticket or prepare the journey.
- Money: Money, is gasoline, it is the fuel that is required to move the car from point A to point B. The more gasoline that is available, the further the car can travel. Money is the fuel or resource that makes trading possible. Sufficient quantities of funds are necessary to provide the trader with a cushion or protection against adverse conditions which are inevitable.
- Market: Choosing a market to trade is like making a selection of the appropriate vehicle for the journey. Depending on the vehicle, it will be either easier or more difficult to reach one’s destination. For example, trading stocks might grow one’s capital by 10% or 12% per annum, but trading Forex may offer a faster or higher growth because of the larger leverage. This is like driving a sports car instead of an off road vehicle. Sports cars are faster, and some say more dangerous to drive, while SUVs’ are able to go off road and traverse ground conditions that are impossible for a Ferrari.
- Method: Different vehicles require different methods of driving ability and skills. Some cars require stick shift gears while others can be driven using automatic transmissions. Buying stocks requires a different method than trading Forex. Methods must be matched to the market in question.
- Management: No car can be driven properly without taking into account the rules of the road or the unexpected events that can happen on a journey. Traders, just like drivers, have to be a road conscious. They have to stop at red lights and allow pedestrians to cross instead of trying to knock them over. Traders have to move out of the market if the conditions are wrong. Just as a driver might have to make a stop over during violent stormy conditions for his own safety. In a similar fashion, a trader must know how to navigate a market move that is going in the opposite direction to what was anticipated.
- Preparation: Before you go on a journey, you need to map it out. You need to fuel the car, buy a compass or program your navigation system. You need to pack your bags and decide upfront what clothing and supplies you will need, both along the way, and when you reach your destination. In terms of the Fusion Trading Model, a trader should always prepare his trades before taking them so that he can know exactly what to expect and what to do if certain parameters or circumstances present themselves.
- Practice: The more often you make the same journey, the better you will be equipped to deal with the inevitable setbacks along the way. If you need to refuel or stop for lunch, it is helpful to know where the closest gas station or restaurant is. If you have traveled the road before, your confidence and efficiency in completing the journey will not be diminished. Practice is the constant and repetitive integration of each one of the components of the Fusion Model, so that it operates as a single unified system.
- Persistence: The more you do something the easier it gets. Some famous people have said, the more they practice, the luckier they get. I believe that it is important to practice so that you will be ready for opportunity when it comes. But we all have to persist in our practice, and be sure that we are practicing the right methods. Wrong practice can be harmful to our trading methodology.
- Passion: Every trader must find his or her own passion. Passion is the “for the love of it!” Trading requires practice, preparation and persistence. Passion supplies the personal fuel to keep going when the going gets tough.
By integrating these 10 steps into one cohesive model of trading, one will be in the best possible zone for success. Since there is no such thing as a “holy grail” method, one should strive for excellence by employing all the building blocks of a competent trading model. Thus, if one is properly prepared and can execute diligently each and every time one takes a trade, one can be deliberately employing a Six Sigma style methodology to one’s trading.
This article is an introduction to the concept of Fusion Trading. Be on the look out for my other articles that provide details about each of the ten aspects of Fusion Trading. In each article I provide more details about each component and how it should be integrated into your trading life.
Selwyn Gishen is a trader with over fifteen years experience trading forex and equities for a private equity fund. He is also a student of metaphysics for over thirty five years. He has written a book called “Mind – How Changing Your Mind, Can Change Your Life!”
Selwyn is the founder of FXNewsandViews.Com and the author of Trading the Forex Markets – A Foundation Course for Online Traders. The course is designed to provide the trader with all the aspects of the Fusion Trading Model. More informationabout Fusion Trading can be found at www.fxnewsandviews.com.
You can reach Selwyn at Selwyn@FxNewsandViews.com.