This Learning Approach Can Elevate Your Trading Process

Over the last several years, I’ve coached thousands of traders.

And one thing my most successful students all have in common is how they pick up new skills.

Whenever we learn, we take either an open- or closed-loop approach.

Open loop systems provide instant feedback as to whether an action was successful or not.

For example, if you throw a dart at a board, you’ll likely take an open-loop approach. If the dart hits your target, you’ll receive positive feedback from the action you just performed. If it misses, it brings negative feedback.

On the other hand, a closed loop provides continuous feedback throughout the process.

For example, a Formula 1 driver receives constant feedback over the course of a race. They must make continuous adjustments as they drive through the circuit.

Making adjustments along the way is neither bad nor good… it’s just part of the race.

Closed loop systems are much more demanding both physically and mentally. They require a steady stream of focus and effort to maintain a high standard of performance.

Trading Is a Continuous Loop of Learning

From my experience, I’ve seen most traders take an open-loop approach to their trades. They assume a trade is “good” if it makes money, and “bad” if it loses money.

But the problem with this approach is that it ignores trading is a game of probabilities that comes down to the quality of your plan.

The hard truth is that even the best trading setups fail. You can do everything right in terms of picking your next trade and still end up losing money.

Just because a trade was a winner doesn’t make it good. And vice versa for a losing trade. What matters is how many net winners you will end up with out of 100 similar trades.

Successful traders understand this concept and accept that they have control over everything except what the market will do next.

There are as many ways to trade the market as there are traders.

But if you know how to apply a closed-loop approach to your trading – and stay consistent in your trading plan – you’ll be far ahead of the crowd. That’s because closed loop systems focus on process, not results.

Unfortunately, most traders avoid taking a closed-loop approach because they don’t have a process to follow in the first place.

So next Monday, I’m going to give you a foundation on which you can build your own process. Stay tuned for more.

Happy trading,

Imre Gams
Analyst, Market Minute

Reader Mailbag

Does your trading process use a closed-loop approach?

Let us know your thoughts – and any questions you have – at [email protected].