Five Things You Can Do Today to Improve Your Trading

[dc]A[/dc]s we all know, the road to trading success is a long road, and the path is not at all straight. To achieve some degree of competence can take years, and I think it really probably takes a decade to achieve some degree of mastery. (One of the main reasons for that length of time is that the trader must be exposed to a full market cycle.) There will be many smaller successes along the way, and, for most traders, many bright spots as well as challenges. Today, rather than focusing on the monumental challenges of trading, I want to offer five relatively simple things that you can start doing, right now,

1. Record keeping. This one cannot be overemphasized. At a bare minimum, you need to be keeping some notes on what you were thinking when you got in and out of a trade. I would also suggest that keeping a separate P&L sheet is a good idea, since your broker’s statement is not really a comprehensive measure of your performance. (I covered many of these issues in some depth in my book.) You can expand this as much as you want, perhaps keeping annotated charts at the time of trade entry and exit along with a journal that explores many aspects of your trading journey, but, at the very least, start writing some stuff down.

2. Review your work. This one is interesting; it is almost universally true that the less you want to review your trades, the more you probably need to do so. Some quirk of human behavior makes us do odd things like not look at the statement, avoid review sessions, or, in the old days, not open the mail when the trade confirmations arrived. Watch for that feeling, and when you are inclined to shirk the duty of reviewing your work and your performance, redouble your efforts. An important point is that what you are evaluating is your adherence to your trading plan. Don’t focus too much attention on any trade or the outcome of any trade, and be careful of changing your plan based on patterns you see. (I know this is in stark contrast to some of the conventional wisdom that says to identify your best trades and try to do more like them. Your trades, good and bad, are buried in a sea of statistical noise. Analyze too deeply, and you risk analyzing noise and being badly misled.) All that matters is how well you follow your plan.

3. Write down your trading plan. Speaking of plan, how is your plan? Do you have a set of written guidelines that govern every aspect of your behavior in the trade? Could a computer trade based on your written plan? If not, it is probably not complete enough. (We should acknowledge that discretion can be an unteachable part of your plan, but, especially if you are not satisfied with your trading results, that cannot be used as a justification for not writing your plan down.) Write down that plan, revise it, and revise it again until it’s an accurate reflection of what you will and will not do in the market. Then, see point #2.

4. Don’t do anything stupid. This is said only very slightly tongue in cheek. I have seen many struggling traders (and investors) who could dramatically improve their results if they would simply avoid errors. Do you make impulsive trades? Do you trade markets or stocks you never planned to trade? Do you take trades that are not in your trading plan? Do you “ignore” stops and “give things a little more room”? If so, stop it. We’ve all heard thousands of times how important discipline is, but a point that is sometimes missed is that you have to be disciplined all the time, every moment, in every trade. If you are not disciplined at every moment, you cannot call yourself a disciplined trader. (It was a revelation to me when I learned this simple fact.) If you weren’t disciplined once last week, you aren’t disciplined. If you only sometimes lose control, your aren’t disciplined. If you nearly always follow your rules, you aren’t disciplined. If you aren’t disciplined, you aren’t going to be successful in the long run.

5. Understand what your job is as a trader. Language can be deceiving; this is a subtle but important point. A cook cooks. A woodworker makes things out of wood. A writer writes. This is very simple, but a trader’s job is not to trade! Think about it for a minute: how many times have you gotten in trouble because you think you should be trading? You are a trader, right? Get in there and pull the trigger! Well, sometimes, yes, but sometimes we go looking for action, looking for something to do, and create trades where no opportunities exist. Your job, as a trader, is to make a set of trades so that, at the end of a reasonably large number of trades, the profits from your winning trades are greater than the sum of your losses and transaction costs. Your job as a trader is to make money, not to put on trades. Remind yourself of that when that voice in the back of your head says “you should be doing something!” Do something: be disciplined and follow your trading plan. Always. Every moment of every day and every trade—always.


Adam Grimes has over two decades of experience in the industry as a trader, analyst and system developer. The author of a best-selling trading book, he has traded for his own account, for a top prop firm, and spent several years at the New York Mercantile Exchange. He focuses on the intersection of quantitative analysis and discretionary trading, and has a talent for teaching and helping traders find their own way in the market.

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