1 min read

Cyclical Discretion Loop

This article is very straightforward and just an observation of psychological phenomena.

As a trader is rewarded for their performance, the process that yielded said performance weakens and discretion expands. Is in part due to a newly inflated ego as well as the recency bias that you are on a 'hot streak' etc. The shift from process to discretion then works until it does not, leading to drawdown, and forcing you to go back to the bread and butter: process.

Rinse and repeat, for a career.

It seems to be the case your job is to have a process to fall back on, while also being able to take advantage while the gettin is good BUT do so in a safe manner. D+ is fine so long as the way down does not lead you to the dark depth of hell.

The takeaway from this is to be aware of the level of discretion you are using and monitor it for fluxes based on recent performance. Often this flux is what leads to stagnation, unexplained results, etc.

As Brannigan Barrett says, the key to trading is learning how to "fail safely".