Saturday, December 17, 2016

Trading With Focus

A topic that has arisen in recent conversations with traders is the importance of focusing on what has been making you money and sizing up those trades, rather than taking many kinds of trades throughout the day or week and watering down your edge.  So often, the difference between profitability and unprofitability is eliminating marginal trades and trading more confidently with our core strengths.  Perhaps most damaging in taking those marginal trades is that we don't accumulate those small wins that allow us to go after larger ones.  It's difficult to build confidence when oscillating between winning on good trades and throwing money away on so-so ones.

A great way of focusing is writing down every component of your best trades.  That comes from studying your winners over a representative period of time.  How does the market or instrument set up for your best trades?  How do you make your best entries?  How do you optimally size positions?  How do you know whether or not to get bigger or smaller in the trade as it unfolds?  When, where, and why do you stop out or take profits?

When you write something down and read it and reread it daily, you cement it in your mind.  As I stress in the recent book, you turn your best practices into robust processes.  But they are *your* processes, derived from *your* success; not something handed down by a would-be guru.  When your best practices become so automatic that they are a fundamental part of who you are and what you do, then you are ready to test out other trading with modest risk and find other rabbits worth chasing.

Many traders have the ability to win and indeed would be winners if they grounded themselves in their best practices.  Instead, they lose focus--often out of frustration--and chase one rabbit after another, catching nothing in the end.  A major turn in trading psychology is getting to the point where losing increases your focus, rather than erodes it.

Further Reading:  Building Your Trading With a Solution Focus