Wednesday, March 25, 2015

The Three R's: Winning Practices of Successful Traders

For this post, I reflected on the traders I've worked with who have been particularly successful and some of their common practices.  Here are three practices that seem to distinguish the best from the rest:

1)  Reviewing and Learning - The best performers keep score.  They review their performance--good and bad--and they made dedicated efforts to learn from mistakes and best practices.  It's much more than keeping a journal.  The successful traders use their observations of performance to fuel specific goals that they then track relentlessly.  They are not always making money, but they are always learning.  That helps keep them constructively engaged when profits are not flowing.

2)  Rejuvenating - Trading is not an easy business.  Income is very uncertain and markets can change on a dime.  Working twice as hard does not guarantee success, but working half as hard pretty well ensures failure.  Average performance keeps you a job and a paycheck in many areas of life, but in trading it leads to bankruptcy.  Successful traders have strategies for staying happy and healthy through the ups and downs of performance.  My recent post outlines a four-fold scheme for staying happy and healthy.  Successful traders turn wellness into a positive habit pattern.

3)  Reflecting and Preparing - Perhaps the single best predictor of trading success that I've found is the ratio of time spent in preparation relative to the time spent actually trading.  Successful traders spend more time researching markets, observing markets, thinking about markets, and reflecting on their trading of markets than they spend placing orders and managing positions.  A very common pattern of trading failure is ramping up the frequency and sizing of trades, both of which tend to increase the proportion of time spent in a flight-or-fight state and decrease the proportion of time spent in planning and observing.  Successful traders are selective in risk-taking and use the time between trades to work on self and markets. 

So those are the three R's of trading success.  They are all about working on oneself in addition to working on markets.  It's what the trader is doing when not trading that contributes greatly to trading success.

Further Reading:  Traders' Checkup