Process versus outcome
Why should a decision be judged by how it was made rather than by whether it made or lost money?
In plain words
Process versus outcome separates the quality of a decision from the result it produced. A sound process uses defined risks, sizing and evidence before the result is known; a lucky outcome can still come from a weak process, and a sound process can still lose.
Why it matters
Outcomes are driven partly by chance, so judging only by results rewards guessing and punishes caution. A repeatable process lets a risk-taker improve, and it shows whether a good week came from a method or from luck and timing.
In a real week: ETH, week of 6 May 2019
In the week of 6 May 2019, ETH rose 15.37% from 163.05 to 188.11, a return in the 92nd percentile of its 64 weeks of history, with a 30.26% range and realised volatility of 108.8% a year. A trader who held because the prior four weeks mixed -4.05%, 0.83%, -6.37% and 3.29% followed a process; one who bought on a hunch got the same gain with no process. The price was still 74.47% below its 52-week high.
A common mistake
Treating a profitable week as proof of a good decision, or a losing week as proof of a bad one. The result is one sample; the process is what repeats.