Skip to main content

Three Ways You Can Become a Better Trader

The allure of trading will attract many to take a shot at becoming a professional in the craft but only those who truly love the process will ever succeed in the markets.

In its simplest form, trading is a profession and like any other attempt to become a highly-skilled professional it will take time, discipline, and deliberate effort to accomplish profitability.

Hard Work

Malcolm Gladwell popularized the notion that it takes an individual roughly 10,000 hours of deliberate practice in order to become a master at a certain craft.

Similarly, seasoned traders openly share the immense amount of screen time that is required to be put in over the years to become profitable.

Simply put, trading takes hard work done consistently over many years. You must bring a blue collar mindset to your trading business by showing up each day for every trade, doing research, and putting forth your best effort routinely.

Accumulating a lot of hours of screen time is a natural part of your trader development.

You need this “time under tension” to develop your perceptual filter for analyzing market information into your trading strategy.

Over time you will begin to develop a large enough sample size of observations in your trading data to identify patterns that you or your system are making and adjust your process accordingly.

But until you have put in enough time to understand your strategy you must stay the course to learn its strengths and weaknesses.


A Disciplined Approach

Confucius once said “The man who chases two rabbits catches none.”

The same can be said for a developing trader who does not put in the time necessary to build a level of competency for one strategy before drifting to another style or market.

As Mark Minervini says, “Don’t try to become a jack of all trades, become a specialist and master a specific approach.”

In order to grow into a profitable trader you will need to focus on your specialty and learn your edge. Know its strengths and weaknesses. That is, when you should lower your exposure levels and when you should step on the gas.

If you neglect focusing on one particular style for the required amount of time it will be difficult to understand its nuances in all market regimes.


Learn from the Best

Dr. Richard Bandler, the co-creator of Neuro Linguistic Programming observed, “When you want new results, it requires new thinking.”

In other words, if you want to become a consistently profitable trader you need to start acting like one.

Study the work of profitable traders by looking at return data. Read all the interviews you can find. Listen to all the podcasts to find nuggets of wisdom.

One of the formidable moments in my trader development process was coming across the Market Wizards series in 2011. Reading how the best traders managed risk, assessed probabilities, and traded an idea or system was invaluable to my development.

After reading this series I was able to transform my trading from a discretionary process with modest success to a robust process that produces positive expectation in multiple markets over a full market cycle.

The more you expose yourself to the greatest trading minds the more you will hear them mentoring you as you trade, making you that much better.

However, while some trading principles are timeless markets do change.

Consequently, you need to keep a malleable mindset that is capable of filtering new information as it develops in the markets.

Start by looking at the facts at hand. Avoid confirmation bias in reaffirming your views for how something should work and adapt to what is working.

If you know yourself and know how the best traders think you will have a tremendous edge in your trading.


Closing Thoughts

Trading is a great endeavor and a life-long challenge. Embarking on the process to become consistently profitable will open your eyes to knowing yourself, the markets, and its participants in exciting ways.


By coming to your trading desk each day with a professional mindset, being disciplined in your methods, and emulating the best you will increase your odds of success and accelerate your learning curve. 

As always, please feel free to contact me with any comments or questions. Thanks for reading. 

John 

Comments

Post a Comment

Popular posts from this blog

Research Review: Does Trend Following Work on Stocks?

In November 2005 Cole Wilcox and Eric Crittenden of Blackstar Funds LLC* (now Longboard Asset Management) published a research report analyzing the effectiveness in using a Trend Following   trading strategy in the US equity markets.   Both fund managers were using Trend Following successfully in the futures markets for many years.   Their success with Trend Following, as well as their peer's results in similar markets , piqued their curiosity and led them to conduct this research.   The strategy tested is a long-only Trend Following program. Trend Following uses absolute price change to delineate strength or weakness in a particular security. In this case, the researchers added long exposure on positive absolute price changes that resulted in an all-time high on a one week closing basis. Before actual testing began, Wilcox and Crittenden made sure to address any data issues. For example, given the expansive time horizon for testing, the authors account for security-sp
2 comments
Read more

Managing Position Level Risk with Dr. Alexander Elder’s 2% Rule

Executing sound risk management principles in your trading is essential to having any chance of investment survival. If one position is sized too large and generates an enormous loss, this can be catastrophic to your account as well as your psychology as a trader. Fortunately, there are methods you can learn that will protect your account. In The New Trading for a Living , Dr. Alexander Elder proposes a method for controlling risk at the position level which he calls the 2% Rule. This guideline states that the total risk in any position cannot exceed 2% of the current month-end account value. For example, if you have $100,000 in your account at the end of the previous month, the 2% Rule limits your maximum risk on any trade to $2,000. That is, risk is defined as the dollar value of the difference between your purchase price and stop loss and cannot exceed 2% of the account value under this rule. Be sure to not confuse 2% with the total position size. While 2% may seem sm
3 comments
Read more

Possible Kangaroo Tail Developing from Longer Term Perspective

Despite the title of this post, the curious development of animal anatomy will not be the topic of discussion. Instead, readers will have an opportunity to observe a potential reversal move underway in equity markets and crude oil delineated by this distinctive price action. No trend can last indefinitely and being able to spot signs of a reversal will help a trader better manage a position. One such method is identification of price action through what Dr. Alexander Elder describes as Kangaroo Tails. This sort of price behavior has a unique pattern. Elder states, “A Kangaroo Tail consists of a single, very tall bar, flanked by two regular bars, that protrudes from a tight weave of prices” (How to Trade for a Living, 65). Kangaroo tails that close down indicate a potential market top whereas when it closes up a possible reversal higher is developing. As with most patterns, price action on a long term basis usually carries more weight as it represents a general shift in the market
1 comment
Read more