Saturday, August 13, 2016

How to Make Yourself a Better Trader, Right Now

How can you make yourself a better trader, right here, right now?

Per Coach Knight's observation, take a hard look at your trading results and identify the one kind of market you most hate, the one that is hardest for you to make money.  Perhaps its a quiet market with little movement; perhaps it's a market that has already moved quite a bit.  Perhaps it's a particular asset class or time frame.  Identify where you really are a poor trader with no edge.

That is what you're meant to work on.

You work on your weak trading not because that's where you should put your eggs in the future, but because the weak areas of trading reveal the vulnerabilities that eventually will dog you in your bread-and-butter trading.  The chain of your trading success is ultimately only as strong as its weakest link.

But, wait, you say:  Aren't we supposed to be focusing on our strengths and making the most of those?  

Of course you want to build on your strengths, and that is your path to growth.  The creative challenge of making yourself better is to figure out how to leverage your strongest trading to improve your greatest areas of weakness.  Somehow, in some way, your best trading holds the key to what you need to be doing in the markets that give you the most trouble.

I don't mind sharing that I took a bit of a butt-kicking this past week in my trading.  Nothing dire--each loss was small--but most my trades lost!  My win rate on trades so far this year has been close to 70%, so a week like the one past stands out as a fail.  So what went wrong?

My strength lies in synthesizing data:  looking at many measures of market strength/weakness and buying/selling and organizing my observations into a cycle-based conceptual framework.  It's when multiple measures of flows come together and fit into a pattern that I'm most likely to place winning trades.  The key to such trading is waiting for everything to line up.  I don't find good trades; they come to me when I'm patient and maintain an open mind.

So what happens in a slow market such as we've had in US stocks?  Everything moves s-l-o-w-e-r and it takes l-o-n-g-e-r for things to line up.  But did my trading slow down?  Hell, no!  I simply moved to faster time frames and looked for things to line up on a near term basis.  In other words, I adjusted my trading so that I could trade; I didn't adjust for opportunity!

Look, I've been trading since the late 1970s.  I have a doctoral degree in psychology, and I've worked with more traders than I can count.  I literally study markets every day.  And still, at times, I can trade like an imbecile.  Weaknesses break through, whether they are shortcomings in my psychology or my trading methods.  Good trading is not about always trading well; it's about identifying and addressing weaknesses quickly and drawing upon strengths to remedy those.

Guaranteed, this weekend I'll be studying my best trades and then seeing how often those patterns set up in slow markets.  That will guide my trading this week.  Every setback has a purpose: to make you stronger.  But that can only occur if you're willing to look setbacks in the face, accept them, and learn from them.

Further Reading:  Trading With Your Brain--And Your Gut