Friday, September 29, 2017

Growing Your Trading Success

Growing as a trader means getting deeper in the river, one foot at a time.  Deeper means building new strategies and finding new sources of edge in markets.  Deeper means expanding risk taking with existing, proven sources of profitability.  As a trader, you want to grow, and you want to do it the right way.

Kudos to Mike at SMB, who wrote this post on a trader who was tested in trading a fast moving opportunity and who passed the test.  What was key was that this trader did not go on tilt when losing money and did not lose focus.  Recognizing this, his risk manager gave him a green light and a day that started as quite a loser became quite a winner.  He took a big step in the river, but never got over his head.

Growth as a trader typically comes in two phases.  The first is achieving a high degree of consistency.  The developing trader develops rules and processes and becomes increasingly consistent in decision making.  While achieving this consistency, the smart trader trades small so that all the mistakes made out of inconsistency won't cost too much capital.

In the second phase, the trader has to monetize his or her consistent trading by expanding risk taking.  This must be done in a way where the risk taking finds increasing depth, but where the risk taking is never jumping in with both feet.  Often the problem is that, during the phase of consistency, the trader has acclimated to small risk taking.  Having traded small for many months, the trader internalizes the sense of being a small trader.  No one has achieved great things with small vision.

It's a tricky combination:  revising one's trading self-concept--learning to think big after having managed small risk--while still retaining the rules, processes, and consistency.  Perhaps the greatest impact of a trader passing the test is the impact that success has on the other traders on the floor.  "If they can do it, why can't I?" is the natural response.  That's the best encouragement of all to get a little deeper in the river.

Further Reading:  Trading and Risk Intelligence