Saturday, September 29, 2007

Such an Important Key To Trading Success

I mentioned in my last post that I've found that successful traders tend to have more differentiated views of markets than less successful traders. Before I left for New Zealand, I talked with several traders I had been working with. Several of them have come out of the August weakness very strongly and are at their P/L highs for the year.

One common ingredient for these traders who have been doing well is that they recognized fairly early on that the markets were behaving unusually in August and that their usual patterns and ideas weren't making money as they had been. Moreover, instead of becoming frustrated that their bread and butter trades weren't making money, they reduced their size and focused on the few things that were working.

In the last couple weeks, they've noticed that things have returned to a more normal state of affairs, which has allowed them to move back into trading their old themes and patterns.

Less successful traders trade the same way across various market conditions. Worse, when their ideas and patterns stop working, they become frustrated and try to force the action. The more successful traders know that markets change: they shift their trending, and they change volatility. When their ideas stop working, they become risk averse. When their themes are paying them out, they're not afraid to put money to work.

Stated otherwise, the better traders are always adapting to market conditions. The lesser traders hope that markets will accomodate them. It's another example of how a more differentiated perspective helps traders deal with change--and even thrive during times of uncertainty.


Qualities of Successful Traders


Zach said...

The temptation to "force the issue" when things aren't working right is extremely difficult to overcome. I can't claim total innocence in this area but its obvious that successful traders are the ones who can realize they are wrong, and adapt. Those that "stick to their guns" often arent' around after a few climactic events.

Always enjoy your posts,

Kevin Hsu said...

The less emotionally attached you are the easier you can let go of trades. The less of an ego you have the easier for you to admit when its just not working.

Brett, great posts always.

Anatrader said...


I always try to remember that markets will behave the way they want rather than to go as expected just because charts do show up fractal.

A case in point recently was the EUUS ; my early long entry was exited early when my charts gave me uneasy feelings. After my early exit, the market broke out on high volume as per Market Delta and of trendline channel, a counter trend strategy for re entry.

I need to redo my RayWave counts, now looking to a strong Wave-3 rather than a previous Wave-5.

What it boils down to is for us to re assess the market as it unfolds rather than to stick to a previous strategy which no longer holds.

Brett Steenbarger, Ph.D. said...

Hi Zach,

Yes, I think you're correct: the successful traders aren't the ones who are always right; they're the ones who know when they're wrong. They know when there's opportunity for their kind of trading and when there isn't--and they gauge their activity accordingly.


Brett Steenbarger, Ph.D. said...

Hi Kevin,

Yes, once a trade idea becomes *your* idea, it's easy to get attached to it. It helps me to think of trades merely as hypotheses re: what I think the market will be doing. Hypotheses are there to be refined and often disproven. It's all part of gaining understanding.


Brett Steenbarger, Ph.D. said...

Hi AnaTrader,

I couldn't agree more: we might have ideas about how the market is likely to behave, but these must always be open to revision based on the latest market data. Thanks for your notes.