The biggest pitfall of a good trading model

When you have a good model for decisions and you understand that you cannot judge the quality of your decisions by the outcome but exclusively by the process you followed to make those decisions there still is a very big pitfall that you have to be aware of:

Imagine that you’re a professional runner and you can run 100 m in 10 seconds. Of course there will be some variance in your performance, some days you will perform better and some days you will perform worse. You’re aware that there is an element of randomness in your performance. But you also know that there are specific factors that will influence your performance, like your diet, how much exercise, your mental state, how much you sleep, etc.

The difficult part is that when you experience some variance in the performance of your decisions you should not of course look exclusively at the outcome as there is a lot of randomness, but you cannot look only at the process completely excluding every possible outcome or you will never be able to question your process. The problem is that the boundary between randomness in the outcome and an issue in your process is not clear, so you’re always left wondering if the outcome is purely random and you did everything you could or if there is an issue with your process.

But it is through this agonizing process that you will eventually manage to allow certain things to come to light which will allow you to understand in a clearer way what is what. What is randomness and what is room left to improve your process.

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