Why you need a repeatable process

Without a process, every decision is made from scratch — usually under the influence of the latest headline, the last loss or a friend's tip. With a process, you know in advance what you will do in good times and bad.

What a process gives you

• Consistency — the same situation leads to the same decision, not to whatever you feel that day.
• Measurability — if you always follow the same rules, you can test them on history and check them in real time. Gut feeling cannot be tested.
• Calm — in a crash, you do not have to decide whether "this time is different". The rule has already decided.
• Improvement — you can change one thing at a time and see whether it helps.

The chart shows a single trend-following rule applied to the S&P 500 every month, through every boom and crash, compared with simply holding. The rule is not clever; its strength is that it never changes its mind under pressure.

A good process is simple

It answers a few questions in writing: What do I own? How much of each? When do I buy, when do I reduce? How often do I check? Anything that cannot be written down as a rule is not a process — it is an opinion.

Related: backtest · choosing a strategy

By Dr. Harry Hamann · 4 min read