Saturday, February 06, 2010

Five Ideas for Improving Your Trading

John Forman recently posted on the excellent topic of "taking your trading to the next level." His post makes some great points and raises interesting questions: What are you doing to raise your game and improve your performance?

Here are a few thoughts about possible ways to elevate your play:

1) You can't take your trading to the next level if you don't know the level you're playing at. It's not just P/L; it's also knowing how you manage risk, how you take advantage of opportunities, how well you execute ideas, etc. Self-improvement starts with self observation;

2) Improving risk-adjusted returns is as important for a long-term career as improving absolute returns. If you take half the trades and make 90% of your previous income, you've meaningfully improved. If you take twice as many trades and make 110% of your prior income, you've moved backward;

3) Learning to diversify your trading (and income stream) can be as important as improving your core trading. Diversification can be by market, by strategy, by time frame, or by some combination of those;

4) Many times, the best improvements come from doing more of what you're good at. It helps to make fewer mistakes, but doing less of what doesn't work is not in itself going to make you a living. It's crucial to know what you're really good at;

5) Improving your preparation for trading can be as important as directly working on your trading results. So many outcome results follow from improvements in one's process.

Most of all, you elevate your trading by always working on your craft. A day without goals is a day without forward movement. And life is too precious to settle for standing still.



Jay said...

True. I can't hide my dumb trades, "scalps," impulse trades, rule breakers, gambles, etc. Gotta see the garbage to clean it up, shine more light on the garbage to get it all up. Face the garbage, get that pain out of the way, yes, I have embarrassing trades, now I can feel them, know them, be aware of when I have a tendency to slip into them. Isn't that step one of AA? I even promise now to myself to blog them! Like the eye that sees everything, be true to your trading plan. I been thru some stuff to get here. "Psychology of Trading" is dog eared & highlighted w diff colors for each study thru. - nqtraderjay

DG's Trading Forum said...

A variation on "Do more of what you're good at" is "Figure out when it's appropriate to do almost the opposite of what you're good at". What I mean is find characteristics of the times in the market where your trading methods are least successful, strip away the elements of your methods which get in the way of success and add new elements as necessary, while retaining things that don't get in the way of success. I just cracked a very difficult long-standing trading problem doing this. Gains are up 3-fold since the beginning of the year vs. what they would have been using the old methods. I'm not quite doing the opposite of what I would have done under the old way, e.g. I'm not going short when the old way would have said go long, but it's different enough to make a difference in outcomes.