Trading is inherently a zero-sum game, demanding constant evolution from those who participate. While patterns and indicators play a role in decision-making, the real challenge lies in the preparation behind the scenes—the analysis and perspective building that must occur before executing a trade. This crucial pre-trade process often goes unnoticed and under-discussed.

In this newsletter, we’ll explore the significance of these foundational steps and how developing a structured process can promote discipline, efficiency, and objectivity in trading.

What is a ‘process’ in trading?

When I talk about process, I am referring to the activities that a trader must do on a continuous basis without fail. A trader has to create new strategies as the markets and its participants evolve. But one thing that rarely changes is the process. These activities are related to building views, understanding the general trend of the markets, and trying to understand what the future trend of the markets could be.

These activities include analysing the broader market trend, how various sectors of the market are performing, which sectors can prove to be the winners in the future, and how other asset classes are performing. These are the activities that every trader must do on a weekly basis.

Importance of a process

Establishing a process is essential for traders for numerous reasons. As humans, we are naturally driven by emotions, which often influence our trading decisions, sometimes without us even realizing it. This isn’t inherently a problem—after all, many of humanity's greatest accomplishments have stemmed from emotional motivation. However, trading is one of the few fields where emotional reactions can come at a high cost. A well-defined process can help remove emotions from the equation. Here’s why a structured process matters:

1. It instills discipline and routine: Discipline and routine are often boring. But they are important. Be it an active trader or a passive trader, when a trader has a process in place and they follow it religiously, they are instilling a discipline in them. When a process is followed over a period of time, it becomes the second nature of the trader.

2. No room for randomness: When the trader had followed a process for a long time, they start to figure out the patterns of the markets. They build observations. Over a period of time, the trader becomes experienced and is able to understand when not to be fooled by the randomness of the markets.

3. Efficiency: Process brings efficiency because the analysis is already done when the markets are closed. In this way the trader will not have to analyse the markets when the trading session is active. When the markets open for trading, all the trader has to do is wait for the entry and take the trade.

4. Important for learning: When a view is formed on an end-of-day basis or after completing a thorough process, it enables the trader to observe the market with this perspective in mind. One of two outcomes will occur: either the view proves correct, or it doesn’t. This outcome serves as feedback, helping the trader identify any missteps and understand where adjustments may be needed.

5. Removes hopefulness and wishful thinking: Consistent learning through feedback and adherence to a structured process enables traders to approach market patterns with objectivity. They no longer rely on hope that the market will move in their favor; instead, they begin to observe the market as it truly is, rather than as they wish it to be.

How to build a process

Creating a process is a highly personal endeavor for each trader. No two processes need to be identical, as the components vary based on the trader’s holding period, trading objectives, and individual style. Despite these differences, the following elements can commonly be part of a trader’s process:

1. Trend analysis of a Broad market index such as Nifty 50

2. Sectoral analysis

3. Stock selection for the strategies

4. Multi asset analysis

5. Multi-cap analysis, and

6. Hygiene check of the existing trades and investment portfolio

I’m a big advocate of checklists—they make it easier to stick to my process. My checklist includes tasks to complete both on an end-of-day and weekly basis, ensuring consistency in my approach.

Checklists not only keep me on track with my process but also enhance my trade strategies. I convert my strategy rules into checklist form and only enter a trade when all conditions are met, creating what I call a “Convergence of Probability.”

Since my strategies are backtested, I know the specific criteria a stock must meet to align the probabilities in my favor. By waiting for each box to be checked, I ensure the probabilities have indeed converged.

Many novice traders struggle to follow a process and checklist consistently. They often question whether their process is effective or even correct and sometimes need guidance to stay disciplined. I faced these challenges, too, which led me to create the TNT One program. In this exclusive membership, I conduct live weekly sessions analyzing the markets and my own process. This has helped many of my students develop discipline and consistency. If you’re new to the market and feel you could benefit from this guidance, I encourage you to explore the TNT One program.