Today’ discussion was not only about preparing for the new year, but the ongoing process of, well, becoming a better trader through periodical reviews, proper goal-setting, and implementing a trading plan.
Improving trading performance is an ongoing process. In addition to webinars like this, we’ve put together specific guides which can help you – “Building Confidence in Trading” and “Traits of a Successful Trader” are just a couple to get you started.
Highlights:
- The performance review process and putting your observations to work
- Focusing on creating the right type of goals, process vs. results-oriented
- Taking small short-term steps to get to achieve long-term objectives
The process of improving as a trader isn’t isolated to any specific time, or simply saying, “this year I am going to start doing this or that”, but rather a never-ending series of actions. It’s a process of self-observation, creating or tweaking an existing trading plan, setting certain types of goals, and periodical review which lead to changes aimed at improving your performance.
Identify strengths and weaknesses through review
For starters, review of past trade history and journal entries is an excellent way to identify strengths and weaknesses. What did I do well, and during what types of market environments? What didn’t I do well, and when did these mistakes occur? By comparing how you performed in certain market conditions (i.e. – ranging, trending, low-volatility, high-volatility) you bring context into the picture so you can better understand what drives your trading, and how you can improve it.
Use your observations to make adjustments
After you’ve identified your strengths and weaknesses and have a thorough understanding of your behavior, the implementation of changes can be put into your trading plan. If you don’t have a trading plan, create one now! Very important to have some type of plan. It can be a simple 2-page outline which features the methodologies and tools you use to make decisions, specific trade set-ups (attach charts as a reminder of what high quality trades look like), markets you trade, goals…For more on this, you can review an archived webinar where we discussed in detail how to create a trading plan.
Focus on ‘process-oriented’ versus ‘results-oriented’ goals
There are two main types of goals – those which are focused on the process and those which are focused on the results. The idea here is to focus on the everyday process which keeps you on track to reaching results-oriented goals. The things you can control. These should be specific and measurable. For example, “I will concentrate on specific trade set-ups”, or “I will exit all trades at a predetermined stop-loss”, or it could be a goal of making sure you are doing a consistent trade review, say every week and month. The list gets much larger of course, but the idea here to make sure you are taking a course of actions which keep you focused on making good decisions in the here and now.
Why do we need to be careful in setting ‘result-oriented’ goals, such as specific targets for how much money you want to make over a given period of time? Because these fall in the category which are not in our control. It leads to unnecessary pressure when we aren’t achieving a specific monetary goal. We can’t change market conditions or the number of opportunities presented to us, but we can control how each trade is handled and how we conduct ourselves. Trading performance is typically clustered, where there are numerous opportunities available and then times when there aren’t are very many. At the end of the day, it’s good to have long-term goals of achievement, we just shouldn’t make them the centerpiece.
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Break it down into small steps
Take it one trade, day, and week at a time. A frequent read-through of your trading plan is good practice as it internalizes it for the long-term. It will help keep you honest and objective about your actions. Think of your short-term preparation as a microcosm of the big-picture. Process-oriented goals are effectively goals aimed at following your game-plan or emphasizing what you do well and fixing what you don’t do so well. Don’t overwhelm yourself by trying to make too many changes at one time. Prioritize what you want to work on and start knocking out each issue one-by-one.
It’s a never-ending process…
Again, as we discussed before – consistent and constant review is essential to improvement. Save charts with labels on them of set-ups you made money on, lost on, ones you missed, and new strategies you might be tracking. This is an effective way of developing self-awareness and discipline. This is an ongoing process for not just the year ahead, but beyond...
Handling the coming year (and longer...)
We didn’t delve into the specifics of what types of trading to expect or market themes. The key take-way is to work on keeping expectations in-line with the current market environment. This past year brought a lot of low-volatility trading, which played well into the hands of certain types of trading approaches. But that will change, perhaps next month or maybe not even for another year. Generally speaking, just make sure you take what is in front of you, but be prepared at all times for the trading environment to change. Be flexible. If you always expect the unexpected you will find that little will surprise you…
For the full conversation, please see the video above…
Past recordings you might find of interest: Creating a Trading Plan; Handling Drawdowns; Risk Management; Analysis, keeping it simple; 6 Mistakes Traders Make; Focusing on the Process; Building Consistency; Classic Chart Patterns, Part I; Classic Chart Patterns, Part I; Classic Chart Patterns, Part II
---Written by Paul Robinson, Market Analyst
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