8/15/2025 - Eight questions to assess whether you are trading well:
1) Does your trading give you energy, challenge, and excite you or does it leave you drained and frustrated?
2) What is one significant way in which you have grown in your trading over the course of this year?
3) What is the one way you could most improve your trading and how are you working on that each trading session?
4) How many people can you identify whose trading you are making better on a regular basis?
5) How many people can you identify who are making your trading better on a regular basis?
6) What have you learned this month from your greatest trading mistake?
7) What have you learned this month from your greatest trading success?
8) So far this year, what is your Sharpe ratio? How does the average size of your winning trades compare with the average size of your losing trades? What is your hit ratio (number of winning trades compared with number of losing trades)? What are you doing--specifically--to improve your performance stats? Can you truly expect to improve if you don't take the time/effort to keep score?
8/14/2025 - You know you're trading well when you can trace a clear evolution in what you do and how you do it. Any great business evolves; it's not the same from one year to the next, one decade to the next. They develop new products and services to replace older ones; they expand distribution; they make manufacturing more efficient; they offer new and different services to customers. Great businesses keep score and know where they're performing well and where they are lagging.
You're trading well when you develop new processes for generating ideas; an expanded range of ways for managing positions and risk; new markets and instruments to master. The great trader spends as much time and energy on self-mastery as on market mastery, because success hinges on both.
8/14/2025 - You know you're trading well when you do a great job of being wrong. The key question is, "How good are you at losing money?" For talented directional traders, I've consistently found that win rates are not all that far from 50%. Where those traders excel is in structuring trades to limit losses and allow for the possibility of large wins. They don't just go long or short; they wait for flows to show them that the moves are happening *now* and then structure a trade with great reward relative to risk. Then, if they're stopped out, they have plenty of dry powder and can step back and reassess their views. Very often, a sound trade idea that doesn't work is telling you something about your market and can lead to an opportunity in the other direction. Trading well means trading with an open mind and allowing losses to provide you with important information. Trading well is trading flexibly, not with a fixed view and mindset.
Note that every trade is not only a view of direction, but also a view of volatility. Where we take profits and let profits run captures our underlying view of how much the market is likely to move on our time frame. Many times, traders focus on direction, not so much on vol. You know you're trading well when you not only anticipation the direction of movement, but the extent of movement. Trading well is trading with awareness, taking lessons away from winning trades and losing ones.
8/13/2025 - How often are you in the "flow state" when you're trading? In the flow state, we see markets differently and see things that we miss when we're not optimally focused. If you're trying to find things to trade and attempting to not miss out, you're surely not in a flow state. In flow, we are so focused on what we're seeing that opportunities come to us. The patterns that we've reviewed and traded stand out when our minds are clear. It is for this reason that it's a mistake to try to substitute positive thinking for negative thinking. The best trading mindset is one in which we turn off our self talk so that ideas can come to us. A great frontier for trading psychology is training our brains to stay in flow. If we are scattered in our daily lives, can we expect to be focused in our trading?