Saturday, May 24, 2008

Changing Yourself As A Trader

A reader recently wrote to me of a dilemma: He is trying to change the way he trades, because he is no longer seeing an advantage in his old approach. His new way of trading involves taking moves on longer time frames, rather than very actively trading in and out of markets. He has created plans to guide his new trading mode, but finds that he is not following those plans and now is puzzled as to how to proceed.

The problem with changing yourself as a trader is not just the learning of new patterns; it's the unlearning of old ones. A trader calibrated to a particular market (say, S&P 500 eminis) will have difficulty reacting to the speed and extent of moves in other markets (say, crude oil). A trader calibrated to one time frame will have trouble putting that "feel" on hold while trying to trade another time frame.

Often traders have difficulty changing their approaches, because the old ones get in the way.

For that reason, I have almost always found that an extended period of observation and simulated trading/extremely small trading must precede any major transition of trading markets or styles. This period permits an immersion in new patterns, and it also facilitates the unlearning of old trading habits. It additionally enables traders to try out new approaches without losing significant money.

Much of trading boils down to pattern recognition and the ability to act promptly on patterns as they unfold. When traders change markets or time frames, they inevitably move to different patterns or similar patterns that unfold differently. I've seen traders make successful transitions in their careers, but the key has been their willingness to undergo a fresh learning curve. Impatience is the enemy of change.


Learning How to React to Changing Markets

How to Keep a Trading Journal

Three Steps to Take If You're a New Trader Losing Money