The New Year is fast approaching, and that means it’s time for that age-old tradition of setting new resolutions. Sure, you cynics out there might say its time for a new start on old habits, but I don’t think anyone can resist a certain amount of reflecting and previewing on New Year’s Day. As Mark Twain once said, “Now is the accepted time to make your regular annual good resolutions. Next week you can begin paving hell with them as usual.“
So in the spirit of New Year’s resolutions, here are four simple things you can do to improve your trading in 2007.
1. Stop blowing your stops
I realize this is like telling an overweight person to "just stop eating". Obviously it is easier said than done if stop-blowing is a problem for you. It is a vicious emotional cycle and there are a lot of reasons for it, I know. But it all boils down to this: Unless you get a grip and pry that twinkie out of your mouth, you will remain a piggie the rest of your life.
When you go back over your trading records for this last year, figure out where your portfolio would be had you kept all your stops. If you haven’t been keeping all your stops, it will become very clear to you that you need to take action.
We don‘t really like to force ourselves to do anything do we? We like to stay comfortable and take the path of least resistance. And oddly enough, I find that for many people it is easier to hold on to random hope and blow their stops, than to examine the reasons why they aren‘t keeping their stops and follow a disciplined plan. But we don‘t want to stay piggies forever do we?
This is the year we will get it right! And please don‘t say, “I will try“, or “I will work on it“. That is a very subtle form of defeatism. Like the Nike ad said, “Just do it!“ Be determined. Keep reminding yourself every trade to follow your plan, never letting up. And you will keep those stops!
2. Stop doing stupid stuff in the afternoon
I cant tell you how many people I have seen who make pretty good gains in the morning, only to give them back in the afternoon. Most any good trader will tell you that when the market is dead, usually between 11am and 2pm, and there is no volume to speak of, trading is not going to be predictable. Indicators will not be reliable, and any random spike of volume at that time can blow a trend out of the water and stop you out. And yet, time and again, I see people forcing trades when the market is slow, that really don‘t meet their entry criteria.
Sometimes they do it out of sheer boredom. Or maybe the morning trades were too fast and they missed the predictable entries, so they are regretful. Maybe they took an early loss and they are out for revenge. Whatever the reason, I see a lot of people fudging and compromising as the day wears on. Don‘t be BRATS (Bored, regretful, angry, tired or sad traders). Trust me, this won‘t get you anywhere. The only reason to enter a trade is, it met all your entry criteria.
3. Stop being lazy
If you really want to analyse your trading habits and figure out what you have been doing right and wrong, you need a journal. Looking back in retrospect, a trading log that contains nothing but your entries and exits isn‘t going to help you out much unless you sit there with charts and re-analyse everything. So lets leave laziness behind in 2006 and improve our record keeping.
In your journal, I highly recommend you include a brief analysis of each trade and the reasons for your entries and exits. Jot down anything pertinent to that trade. What time of day was it? What was the volume like? Was the trade going in the direction of the market trend, or against? Why did it go bad? Did you omit one of your criteria for entry? Were you stopped out because of sudden unexpected news? Was it a good set-up that simply went the wrong way? Sometimes a stop can feel as good as a gain, if your plan was met and executed timely. Was your trade structured, or were you flying by the seat of your pants? Did you feel in control, or was the trade over your head? Those are things I would be interested in knowing. That is the real heart of the trade.
If you take the time to keep more accurate and thorough records, I think you will start to see patterns in your trading and learn a lot about yourself and your habits. From there you can start to preview the year ahead and set new goals. Do more of what works, and less of what doesn‘t.
4. Stop jumping around
One of the reasons I believe that people fail to become successful traders is because they chase dangling carrots, jumping from one system to another without putting enough effort into gaining proficiency at any of them.
I don‘t care what system you choose, but please stick with it until you have really learned it before you move on. Because if you are losing, chances are good its not the system that’s failing, but rather your ability and discipline to follow that system. If the same system is working for someone else, then you are the problem, and adding more indicators or jumping around trying something else wont help you.
Consistency, determination, backbone, perseverance, those are words to remember not just in 2007, but always. As Hal Borland once said, “Year's end is neither an end nor a beginning but a going on, with all the wisdom that experience can instill in us.“