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.