Thursday, December 10, 2009

Three Problems I've Seen Among Traders During 2009

We're getting close to that time when traders begin thinking about their goals for the coming year. Ideally, those should emerge from reflection about the year just passed, the progress that's been made in trading, and the areas that need improvement.

Here are three areas of work on performance that have appeared particularly often in my conversations with traders and portfolio managers:

1) Allowing long-term views (on the economy, political views) color one's short-term trading. Many short-term traders (and not a few individual investors) have missed a good amount of the rally from March because they have held onto longer-term bearish views and failed to separate those views from their reading of the tape.

2) Problems with execution and trade management. As markets have gotten choppier and less volatile, adding to long positions on strength or short positions on weakness has led traders to be maximally exposed just as markets turn. Unable to take the heat, those traders bail out with losses--even when their trade ideas have been right.

3) Staying too small. To be sure, I see plenty of traders who overtrade. Less well appreciated is the problem of trading too slow and cautiously when good ideas and setups are present. When I review the traders' results, I find few trades (and periods of time) where the trader was really aggressive and making the most of an edge.

All of these make fantastic process goals for 2010. I'll be writing more about annual goals as we near January 1st.