Wisdom doesn’t necessarily come with old age; it comes through experience, learning, and above all, self-analysis. The same is true in most professions, sometimes a bad doctor/teacher/plumber stays a bad doctor/teacher/plumber until he retires. Two exceptions are sports — if you’re a bad athlete you’ll be cut and that’s that, and trading — if you’re a bad trader you will blow out. However, the analogy still holds true for everything in the middle ground. There are traders who are good enough to pay the bills year over year but their PnL never reaches the “comfort” zone. In our experience there are a few things that can be done to help advance the improvement curve.
1. You have to analyze your actions. Trading, like life, is all about patterns.
The newer you are the more analysis you need to do: profit analysis,
risk analysis, trading journal. We did this for years and still keep a
PnL Excel graph on a daily basis. When an anomaly occurs, we write a
paragraph beside it to describe what we were doing to cause the anomaly,
good or bad. Writing the HCPG newsletter for 5 days a week for 5
years is now a form of journal writing for us — it forces us to make
concrete what is potentially abstract. The act of writing lends
clarity to one’s thoughts and enables the next stage of understanding.
Starting a blog, even if it’s private, and writing out your trading plan
is an excellent method of trade introspection.
2. You have to be hungry to become better. Is there any more
humbling career than that of a trader? As the years go by the learning
curve flattens but it should never stop. There is always room for
3. Having a trading buddy/mentor/community to bounce ideas off is a
fantastic catalyst for advancement. Many moments of enlightenment for
us have come through the discussion with traders of strategies,
building upon each other’s thoughts until you reach a new level of
4. You can’t be afraid to lose. We read years ago a trader who
said: “Trying to avoid losses in trading is like trying to avoid
breathing in life.” Losing money is part of the job, it cannot be
avoided. You cannot trade well if you are in constant fear of
losing. That’s what risk management is for, that is what stops do,
they take away the fear and help a trader stand back and let the trade
5. Once you get the basics of strategy and risk management down it
all becomes mental. For active traders at this stage of our career
it’s all about conviction. We touched upon this issue in a post a few months ago
— if we start to second-guess ourselves, it’s game over. Traders
know this, and that’s why in a tight trading group it’s a faux pas for
any one trader to talk negatively about another’s live position. It’s
the reason we never ask anyone’s opinion about a trade. If we have to
ask then it automatically means it’s not good enough to take in the
first place because the idea doesn’t jump out on one — it’s not a
no-brainer, a lay-up. If we had to point to one reason why we’re still
around after all these years it’s because we wait for the trades that
jump out — if nothing is good enough to trade step back and become a
spectator until the next set-up emerges. Don’t worry, there’s always a
bus that finally comes around the curve.
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Originally published May 07, 2011