SMB Capital
July 15, 2026
Trading Psychology: Why Process Beats Strategy
TL;DR
A trader's drawdown wasn't caused by a flawed strategy but by abandoning his tested process during losing periods; the key lesson is that discipline in execution matters more than creative strategy changes mid-trade.
Key Takeaways
- 1Distinguish between strategy evaluation (done after market closes) and in-trade decision-making; questioning your plan while actively trading leads to dangerous deviations.
- 2Winning while breaking your plan is more dangerous than losing while following it, because it reinforces the false belief that the plan was wrong.
- 3Creativity belongs in the planning and research phase; once a trade is live, your job is disciplined execution, not creative problem-solving.
- 4Journal by asking 'Did I follow my plan?' not 'Did I make money?'—process violations are worse than losses because they're choices you control.
- 5Most trading breakthroughs come from becoming a better executor and risk manager, not from finding new strategies or indicators.
- 6A normal drawdown becomes a large drawdown when you stop following your tested process; the strategy itself was working as designed.
Notable Quotes
“The problem wasn't my strategy. The problem wasn't the market. The problem was me.”
— Speaker
“Creativity belongs in planning. Discipline belongs in execution.”
— Speaker
“I'm actually more afraid of writing a no than taking a loss. Because a loss doesn't necessarily mean I did anything wrong. A process violation does.”
— Speaker
“Process is what creates consistency, not outcomes. Outcomes are random in the short term. Process is what matters.”
— Speaker
Chapters
1. The Problem Wasn't the Strategy
The speaker shares that his worst trading period came not from a flawed strategy but from his own behavior. He had spent significant time backtesting and building data-driven plans, yet during losses, he began questioning the plan instead of trusting it.
2. The Danger of Winning While Breaking the Plan
When the speaker occasionally deviated from his plan and it worked, his brain interpreted this as proof the plan was wrong. These rare wins while breaking protocol gradually eroded his confidence in the original process, leading him to trade ad-hoc ideas instead of tested systems.
3. From Normal Drawdown to Large Drawdown
The speaker explains that every strategy has normal losing periods and drawdowns. His mistake wasn't the strategy failing—it was his abandonment of the strategy that turned a manageable drawdown into a severe one.
4. The Role of Mentorship and Psychology
Colleagues at SMB Capital, including Dr. Steenbarger, helped the speaker examine the psychology behind his decision-making. They identified that his core issue was struggling to trust the process during difficult periods and the inability to stay disciplined mid-trade.
5. Creativity in Planning, Discipline in Execution
The key insight: creativity is essential during strategy development and backtesting, but once a trade is live, the job becomes pure execution—follow the plan, manage risk, accept outcomes, and move forward.
6. Reforming the Journaling Process
The speaker changed his daily journaling to ask a single question: 'Did I follow my plan? Yes or no.' This reframed his focus from outcomes to process, making process violations (which he controls) more important than losses (which are part of trading).
7. Weekly Reviews and Continuous Improvement
The speaker now views journaling and weekly reviews as where real improvement happens. Market feedback, combined with systematic analysis of trade journals and data, identifies patterns and weaknesses that drive long-term progress.
8. Strategy Work vs. Personal Work
The speaker advises traders in drawdowns to diagnose the root cause: Is it a flawed strategy or flawed execution? These require different solutions. Most of his career breakthroughs came from better execution and discipline, not new strategies.
9. Trust Your Research, Stay Disciplined
The market will always test confidence and make you question your process. Success comes from trusting your research and maintaining discipline during losses—not from finding magical indicators or chasing new setups.
Key People & Entities
- Mike, Steve, Seth, Jeff, Carlton
- Colleagues at SMB Capital who provided mentorship and helped work through trading psychology challenges
- Dr. Steenbarger
- Psychology expert at SMB Capital who helped the speaker understand the psychological drivers behind his trading decision-making
- SMB Capital
- Trading firm where the speaker works and had access to mentors and resources during difficult trading periods
Glossary
- Drawdown
- A peak-to-trough decline in a trading account or strategy's cumulative returns during a specific period; measures the magnitude of losses from a historical peak.
- Backtesting
- The practice of testing a trading strategy against historical market data to evaluate its performance and validate its rules before trading live.
- Risk Management
- The process of identifying, assessing, and controlling risks in trading through position sizing, stop-loss orders, and other protective measures.
- Process Violation
- When a trader deviates from their tested trading plan or rules by making discretionary decisions that aren't part of the original strategy.
- Curve Fitting
- Over-optimizing a trading strategy to fit past market data so closely that it fails to perform in real or future market conditions.
- Stop-Loss
- A predetermined price level at which a losing position is automatically closed to limit losses and protect capital.