Most successful traders have a detailed personal trading process that is executed in exactly the same way all the time; a personal trading process that never varies. Without such a trading process, the chance of consistent success is severely reduced.

The question now becomes - how does one develop a trading process?

Developing a trading process can be an interesting challenge because, to be useful, it must be personal.

Each of us must develop our own, in our own way

This is important because in order for our trading process to be effective it must match our personality; it must take advantage of our strengths and it must compensate for our weaknesses.

We must believe in it, and believe what it will do for us

We must own the process

A trading process is a detailed, step by step implementation of our personal trading plan. Thankfully, there exists a body of knowledge to assist in developing such a plan.

The general theory of command systems offers useful concepts of planning and control. The literature on trading techniques and trading discipline offers numerous personal qualities which have an impact on trading success.

Combining the planing and control concepts with the qualities of good trading practice provides us with a suitable framework upon which to build our own trading process

None of these personal qualities are particularly new. They are heavily discussed in the literature on personal behavior as well as trading. None of the planning concepts are new. They have been developed over many years of study of command and control theory.

What is different is the combined approach we call DOFPIC

DOFPIC stands for the qualities necessary for successful trading:

  • Discipline
  • Organization
  • Focus
  • Patience
  • Independence
  • Confidence

We must develop the discipline to organize and focus our trading activities into an intelligent process. With discipline comes the patience, independence, and confidence essential to successful trading.

In a word, DOFPIC we find it much easier to just say (to ourselves of course) that we are DOFPIC traders. However you may do it, we find it beneficial to use DOFPIC as a personal “mantra,” and we suggest repeating it often as positive self-talk.

The design of a trading process is critical to the development of the DOFPIC qualities

As we approach this objective, it is useful to remember the principles used for designing command and control systems:

The first principle is goal orientation; having a clear under- standing as to the goals of the process and constantly reviewing those goals to insure their applicability over time.

The second principle is understanding the transformation from market information to decisions to action, a rule inherent in any trading process.

The third principle is the need for control over the execution of the process, and control over the outcome of the process; the return.

The fourth principal is the requirement for periodic evaluation and review of the process. 

The environment, the information, the technology, the trader, and the market itself will change over time. The trading process will need to be modified to reflect these changes. The qualities represented by DOFPIC transcend trading the option markets, but they have special significance here because adroit application of these qualities will allow us to meet some of our personal objectives.

The 6 steps to successful trading; DOFPIC

Discipline is the ability to follow our trading plan, which allows us to control the fear and greed that are the prime motivations moving the market.

Organization is the specific process; the daily logs, the money management rules and the risk management stops we use to execute the plan.

Focus is the quality that allows us to be specific on which market instruments we trade and our role in the trading process.

Patience is a constant reminder to trade carefully and to wait until our market has a shape that offers a very good chance of success.

Independence is the ability to ignore advice and tips from people outside of the independent trading world, people who most certainly know less about what is going on than we do.

Confidence in our self and in our trading process follows from the other qualities, and is absolutely required for successful trading.

The DOFPIC trading process

The DOFPIC trading process schema is shown in the figure below. It illustrates the interaction between DOFPIC qualities and the trading process itself. In one sense, the figure could be drawn with fuzzy lines in place of the solid interior lines to represent the fact that all six qualities revolve around and through each other and through the trading process.

There is no one starting point. It is just as meaningful to start, for example, with confidence and to ask what qualities are needed to be a confident trader. Not surprising, the answer is

“In the final analysis, it is up to each one of us to design our own personal trading process that we believe in and trust. A trading process that matches our personality and that takes advantage of our strengths and compensates for our weaknesses. In the end, this process will help us reach our personal objectives.” Dr. J.D. Smith 

Dr. Smith founded AIQ in 1985 to develop the first Artificial Intelligence-based stock market system for use on desktop personal computers. Most of AIQ TradingExpert’s reports, including the Weighted Action List, Group Analysis, and Market Log reports, came from Dr. Smith’s research. He developed MatchMaker and Expert Rating technology.

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