Sunday, November 22, 2020

Finding Unique Edges In Your Trading

One enduring observation I've made in years of trading and working with traders is that no one achieves distinctive results in markets without approaching trading in a distinctive manner.  The great traders are either looking at something different from the herd or they're looking at the same thing in a very different manner.  Another way of saying this is that, over time, intellectual independence and creativity win and conformity and stasis lose.  Come to think of it, that 's true in any entrepreneurial activity.

So here's a great frame for your next trading review:

1)  Am I trading something different from the majority of others around me, or am I in the same stocks, the same ideas, the same themes, etc.?

2)  Am I trading differently from the majority of others around me, or do I express my views in the same vehicles, the same strategies?

Don't get me wrong.  You might make money trading the hot stocks or consensus themes of the moment.  You just won't be building a business for the long term.

Every great business devotes significant resources to research and development.  Even if they're selling lots of products today, they are investing in the products that will win tomorrow.  That's true of car companies; that's true of pharmaceutical firms; it's true of restaurant chains.  Success is a combination on working rigorously in implementing today's edge while searching for and developing the opportunities for tomorrow.

So here's another great frame for your next trading review:

1)  How deep is your research and development pipeline?  What new edges in trading are you pursuing?

2)  How much progress have you made on your R&D goals in the past month?  What will make you a new/different trader by the end of 2021?

Listen up:  The enemy of great trading is not emotionality, going on tilt, or failing at the "mental game".  The enemy of sustained successful trading is mediocrity.

One trader I worked with traded breakout patterns, but the time series he looked at consisted of the relative relationships among stocks and stock sectors.  In other words, he would buy upside breakouts in the relative strength of one thing versus another thing.  Moreover, he would find options structures for capturing his relative views that gave him unusually good reward relative to risk.  He was consistently profitable, not by playing the game better than his peers, but by finding a different game that played to his strengths.

In my next Three Minute Trading Coach video, I'll describe one of the edges I pursue in the stock market and what makes it distinctive.  (Spoiler alert:  It's currently giving a signal).  

Life is too short to be mediocre.  Whatever you embrace as a career or as a romantic partner or as a lifestyle, make it an expression of your unique strengths, your distinctive interests and skills.  There are no prizes for "me too".

Further Resources: