It Has Always Been About Process
How the market makes a price, and how I decide what to do with it
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On a chart, a winning trade begins where I entered and ends where I got out. It leaves out the failed trades that came before it, how much I could afford to risk by the time it arrived, and the afternoon I nearly took the profit while it was still there. Looking back, I can see the whole move. While I was trading it, I could only see as far as the next decision.
That difference is easy to forget. Once I know where the trade ended, staying in can look like the obvious thing to have done. At the time, the market had already given back some of the gain. For all I knew, it might give back the rest.
There are two processes in that one trade. There is the way the price took shape as people bought, sold and responded to one another. Then there is the way I decided when to enter, how much to risk and when to leave. They met when I placed the order. The gain on the chart was the result of that encounter.
What the result leaves out
A profitable trade makes the decision that preceded it look better. A loss can do the reverse. Psychologists Jonathan Baron and John Hershey studied how knowing an outcome changes the way people judge an earlier decision. [1] I recognise the tendency in myself. Give me the last page and I start reading the earlier ones as if I knew where the story was going.
The money still matters. A loss leaves me with less capital for the next trade. A gain can give the account some room to breathe. Over time, the results help me decide whether the method deserves to continue. But a figure in the account cannot tell me whether I followed a well tested rule or took a chance that happened to pay.
Suppose two accounts finish the year with the same return. One took its signals at the planned size and earned most of its gain from a trend it held for months. The other missed that move and made up the difference on a trade twice its intended size. They look identical in a performance table. I would have different questions for each manager.
That is why I keep a record of what I knew and what I did. I want to know which signals I took, which I skipped, what the trades cost and how much I had at stake when several markets moved together. The numbers tell me what happened. The decisions and exposures help me understand how it happened and whether I would be willing to do it again.
What I learned to look for
A flock took its shape from birds responding to one another. A forecast entered a bar and changed who turned up. A river cut a channel that guided the water that came after it. Beside a stream, a Gubbi Gubbi elder pointed to a flowering tree and told me where the fish would be.
I keep coming back to that tree. I could see the blossom, and I could see the water. He knew that the flowers attracted insects at that time of year, that some fell from the overhanging branches, and that the fish gathered where the food reached the stream. Once he explained it, I could follow the connection. Everything I had been looking at was still there. What changed was what I understood about the place.
The flock, the river and the stream each have their own explanation. What I could carry from one to another was a question: what happened between the things I could see? David Bohm’s distinction between visible and underlying order helped me put that question into words. [2] At the trading desk, I still had to find the answer in the particulars of the market.
It changed where I looked. A price chart could tell me which move lasted, so I went back to count the signals that went nowhere. A risk report could show small positions in different markets, so I asked what might make them behave like one. And when a backtest showed a large winner after months of losses, I began to ask who would still have the capital to take it. Each time, the result I could see led me back to a part of the process I had overlooked.
Where the two processes meet
Prices take shape as people act and respond to one another. One trader sells because a fund needs cash. Another reads the falling price as a signal and sells too. A third buys because the price has reached a level they’ve been waiting for. The price that comes out of those decisions becomes the price everyone faces next. When I place an order, I take part in that process.
My own process starts before the order. I decide what qualifies as a signal, how much I’m prepared to risk and what will take me out. I record what happened and return to it later, when I can see the trade alongside the others. If several positions lost together, I want to know what connected them. If costs have risen enough to weaken the case for the method, I want to find that out too. Sometimes the review gives me reason to change the rules. Sometimes it gives me reason to leave them alone and take the next signal.
Episode 11 moved between those two moments: the decision at the desk and the review that comes later. The record can help me see what I missed and prepare for what might happen again. Then I’m back at the desk with a decision to make and an outcome I don’t yet know.
The wave withdraws. The shoreline holds a trace of its passage until the next one arrives. Of course. It was always about process. We were just trained to look at outcomes, and the outcomes kept hiding what was actually happening.
Previous: Episode 11, The View From Inside, The View From Outside
Next: Series Synopsis
Sources and notes
[1] Jonathan Baron and John C. Hershey, Outcome Bias in Decision Evaluation, Journal of Personality and Social Psychology 54, no. 4 (1988): 569–579.
[2] David Bohm, Wholeness and the Implicate Order (London: Routledge, 1980).
Richard Brennan writes on systematic trading, complex adaptive markets, and the philosophical foundations of trend following at atstradingsolutions.com. His published books include The Fractals of Finance, Complex Adaptive Markets, Carved by Impossibility, and The Aussie Turtles Trend Following Guide, co-authored with Adam Havryliv. His forthcoming book, The Trend Following Manifesto, co-authored with Niels Kaastrup-Larsen, is coming soon.
You do not need to predict the future. You need a process that keeps you present for the rare moves that matter.
The Trend Following Manifesto: Building Robust Portfolios for an Uncertain World
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Carved by Impossibility: What Remains When Everything Else Is Eliminated
The book explores the architecture of constraint, emergence, and reality itself, and what it means for how we understand markets, life, and the universe.
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The Fractals of Finance: Determinism, Adaptation and the Geometry of Markets
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