At this seasonal time of renewal, change and re commitment—this is the perfect time to evaluate our trading results and a time to make new resolutions.
An old saying comes to mind:
“You can’t manage what you don’t measure.”
It is an old management adage that makes a lot of sense especially in trading. Unless you measure something you don’t know if it is getting better or worse.
Here’s my list.
1. Manage the tendency to overtrade. What is overtrading? It is the act of excessive buying or selling of a security in a defined period of time by increasing the risk limit. A lot of beginning traders find themselves over trading and the sooner they find out that in this career the more disciplined you are and the more successful you are the better it is for the trader’s future. Discipline is what it takes to make it to the next level.
2. Cut your losers and let your winners run. You often hear this but how are you actually applying it? Losing trades are inevitable, they happen; there is no trader, no high frequency trading computer on the planet that only racks 100% winners, losing is part of the game. It’s important to cut your losses before they develop into a red stream of losing trades and starts damaging your accounts. Never add to a losing trade. This requires discipline (again). On the other hand when you have a winning, profitable trade it is important to let the profits run, do not be tempted to close the trade too soon on the first pullback, give it room to develop, give it room to breathe.
3. Keep a trading journal. If you are not already keeping a journal I suggest you start. Keeping a record of all your trades offers the best trading strategy self analysis. It will give you an inside look into your trading strategies, habits and behavior. By thoroughly documenting your trades you can reveal things that you are probably not aware of.
4. Trade the chart. If you are an equity trader the news at times might be already build in the price. If you are a currency trader things stand a little differently. Economic releases are the catalysts for market moves so it is important to pay attention to news releases throughout the world and have an action plan ready.
5. Choose your timeframe wisely. Choose your timeframes depending on your style of trading. Here are my thoughts from trading markets for over 10 years.
- If you are a currency trader, I always teach my students to stay away from the noisy intraday charts and take a step back and look at the longer time frames for many reasons but the most important are: it brings more clarity and it is easier to identify the trend, volatility and spread.
- If you are an equity or futures trader it truly comes down to your style but also you need to pay attention to the time frame on which the pattern developed on (gap traders focus on the 1 and 2 min charts, trend traders on 5 and 15 min charts, swing trader on the 1 hour and daily chart, core trader weekly chart, etc)
6. Responsibility. Take responsibility for your own trading decisions and trading results.
7. Have a diversified portfolio. Diversification is key. Never put all your eggs in one basket. Diversification reduces risk and maximizes returns by investing in different instruments or market sectors. The results will be asymmetrical and less volatile which is good for the portfolio.
8. Adhere to your own trading / investment plan. If you do not have one, it is time to develop one that will encompass your entire trading routine. Having a well detailed plan will reduce stress and emotions from trading.
9. Education. Always strive to improve your trading education. Self improvement goes hand in hand with New Year’s resolutions. Make it your goal for 2014 to learn something new to enhance your trading; there is always room for more and always something new to learn. Whether you want to learn how to trade globally, study another strategy, improve your investment technique or just take on another instrument.
10. Follow your own trading rules. The bottom line is that we as traders need to get ready for 2014, and one of the best resolutions I can think of is to follow our own trading rules.