Flawed Process

Lambretta at the Thoughts of a football trader blog posted the following today:

Read an excellent post on twitter from a financial trader earlier.

There were a few elements to it but, much like the books it referred to, it focused upon process over profit.

We hear it constantly but how, even though we've read the books and tried to drum the concept into our heads, do we abide by this rule? Well, picture yourself as the crop farmer. Year in year out, season after season, the farmer goes through the process. He cannot control the outcome. All he can do is give himself the best chance of seeing a good crop. He does not dream of a bumper harvest, does not picture himself in a brand new tractor. What he does is follow the process, knowing that, based on thousands of years of farming knowledge, this process offers the best opportunity of having a good year. The weather can write off the entire crop, parasites can could ravage everything but he cannot do anything about these aspects. All he can do is give himself the best chance.

And so it is with us, too. Process, process, process.

Well, not exactly. In fact, quite the opposite.

The problem with this philosophy and specifically this example, is that while we all understand weather is by nature unpredictable and will vary from year to year, an event such as climate change means that the thousands of years of farming knowledge are now rendered all but irrelevant. 

The farmer's assumption that the underlying environment is unchanged is flawed. He can stick with his process all he likes but it's doomed to failure.

The process will no longer lead to long-term success. Farmer Giles needs to adapt.

While betting markets haven't been around for thousands of years, they too change, often overnight, and a punter must likewise adapt or fail. Strategies don't last for ever. 

Adopting the farmer's mentality of "well it used to work, so I'll just keep on doing it" is simply a recipe for disaster. 

"The definition of insanity is doing the same thing over and over again and expecting different results"

Whether or not Einstein actually came up with that quote - he probably didn't - it's certainly true. 

Traders must always be aware that change is inevitable, and must constantly watch the markets they are betting or trading in. 

Process, process, process yes, but the process has to evolve.