How To Put Your Trading On Steroids
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Everybody wants to juice up their trading results. Once you have developed a few go to trading set ups this is something that is not to hard to do. Lets take a look on how to maximize performance quickly.
The easiest and most effective way to do this is to journal your trades. Of course, many traders keep a journal but most are not sure of the exact function. There should be 3 main functions of your journal- 1. Defining your edge 2. Cleaning up entries and exits. 3 Identifying the hours in which your performance is at its peak. We will take a look at each one below.
Defining your edge Every trader needs to know exactly where their “performance zone” is and what defines them as a trader. This is the trade set up that you have the highest winning percentage as well as the highest comfort level trading.Unfortunately, nobody can tell you what this is and this is something you must learn on your own through trial and error.There is certainly no shortage of traders out there that try to tell you what strategy you should be using but in the end those traders don’t pay your bills so the best strategy to use is the one that puts money in your bank. When you enter a trade take a moment to write down the type of setup and the reason for taking that particular set up .By documenting in your journal the type of trade you can easily assemble a quick list of strategies where you have the highest winning percentage and these are the trade setups you want to spend your whole day looking for. Because there is no reason to put money on a 50-50 trade when you can be patient and lay it heavy on a 70-30 trade
Cleaning up entries and exits Another important element that a journal can help with is cleaning up your entry and exit points . We have always used the reference that there are three main components of a trade, idea, execution and management . Many times we have a great idea and we know what a stock may do but somehow we find a way to screw up the entry or the exit and destroy a potentially great trade because of poor execution .I use to things in my journal to fix this, for entries I look at Max draw-down per trade. Draw-down is a term used to define the maximum dollar point that you were negative on a trade whether it worked out in your favor or not .So for example if you made $100 on a stock trade but at one point you were negative -300 then the $300 would be your draw-down amount .Keeping track of this lets you know that if your draw-down is too steep on most of your trades then you are rushing your entries or in other words chasing .The other thing I use in my journal is once I exit a trade I will list whether that trade had moved further in my direction after I got rid of it. This helps me during times when I’m leaving too much money on the table so I can be more patient with trades.
Identifying the hours in which your performance is at its peak –The other element is what time frame does your strategy appear throughout the day. Are there more of your set ups in the first hour of trading? Or are there more of your set ups later in the day? The importance in time lies in the fact you must have your highest level of attention and minimal distractions during this time period. In other words you need to be at your best.There are only so many consecutive hours your mind can be at peak performance and knowing what time your top set ups normally show up you can be ready to take full advantage of the opportunities.
Remember that most profitable traders will earn most of their annual gains on only 20% of their trades. Sure they may have a +70% win rate but the lions share of the gains will come from a very small amount of their trades. What makes this possible is that when their top tier plays come by they devote their full attention, full size and full advantage. This is the exact opposite of amateur traders who usually do this backwards by taking several small wins and then ultimately 1 big loss that wipes them out. Stay focused on your top set ups and your results should improve.
Doug
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