Reading the title of this post, you are probably in a trading slump looking for help or are already profitable and looking to get better.
Yes, we all want to improve our trading results, myself included. Achieving perfection is damn near impossible in this game but there are ways we can improve over time.
Fortunately for me, when I worked in a prop firm, they would show us useful tips to improve our results.
These were so simple that it's annoying that I didn't think of it on my own.
But the truth is the best and most effective ways to improve are generally through simple tweaks or adjustments.
I remembered something which stuck with me when I worked in prop that a head trader mentioned at the time.
You are one simple tweak away from profitable trading
Very very basic lesson but a very very important one.
Now don't get me wrong or misinterpret what I mean. You could very well need a few tweaks to get results but you may find that small changes and not drastic ones fix the problem.
This post assumes you have some form of trading experience and already have a trading business plan created. If you don't, you might want to start with creating a trading plan and tracking your trades.
When people ask me to consult with them and try help them improve, the first thing I usually do is ask to see their trading stats.
This is where I can get all the juicy details of a person's trading. You'd be amazed what can be found from someone independent looking at your stats and offering insights.
I'm 28 years old and one of the best things that happened to me in my 7 years of trading was having someone look through my trading stats at the beginning of my journey when I had a few months of results accumulated.
I also noticed that when people asked me to look through their stats, I myself would learn something from it. So it was a win/win.
From looking through hundreds of stats from traders, I've developed some easy steps to follow to help.
Now this doesn't guarantee overnight success but it could help you improve. It could take you from a losing trader to a break even trader which is a step in the right direction.
Step 1 - Look at Your Losing Trades
Honesty, I don't know why but there is almost a taboo when I ask to dig deep into traders losing trades. Unfortunately for us humans, we are hard wired to avoid pain at all costs.
The problem is, pain is necessary for growth.
We can learn so much from our failures but a lot of us just do not want to focus on it. How many very successful people haven't at least failed once ?
I would say anyone at the very top of what they do didn't get there without setbacks along the way.
But what can I look for in my losing trades ? Well first, lets look at this for an example.
Mark Minervini, a multi million dollar trader, who started with small amounts of money and by his own admission didn't have any special talents, had his aha moment when he looked at his losing trades in detail.
What did he discover ? By capping his losing trades to 10%, (not 10% of his equity) but 10% of a stock price, his performance would have changed from - 12% to + 79% on the year.
Now, think about that for a moment, so so simple. He simply said to himself, what would happen had I just cut the trade when the stock moved against me by 10% and the results for him were life changing.
He would have been stopped out of some potential winning trades he had with this tweak but overall the change to performance was amazing.
One very very simple tweak that had astounding results.
This one piece of information helped transform my trading too. Although, I didn't learn it specifically from Mark, the head trader at the prop firm I worked at taught me this.
It seems like common sense and it's annoying I didn't even think of it on my own but nonetheless, you can't argue with the change in results.
I encourage you to look at your losses. What would happen if you cut your losses at a particular percentage consistently ? You might be surprised with the results. I know I was.
Step 2 - The Drawdown Stats
Okay, another touchy subject amongst us traders. The inevitable drawdown. It can feel like torture when we are in one and we can do nothing right.
When you are in a losing streak, it can feel like you are the only one losing in the world. Some traders on twitter will have you believe that drawdowns don't happen to them and they are great.
This is utter nonsense and it happens all of us.
The best traders in the world have come back from mind boggling drawdowns and learned from their mistakes. It's almost like the unfortunate necessary journey a trader must take to make it to the top.
Just read my story of a huge loss I took a few years ago.
I'm by no means am a top trader, but I recovered eventually and am consistent.
Now that we know that a drawdown is inevitable, we can study our stats in detail to help improve going forward. Write down every detail of your losses, psychological, everything !
Let me explain. In my own trading, I noticed that if I had 5 losses in a row, I started to act reckless and get rubbish entries on the next trade after that 5th losing trade.
This was very useful information for me. Why ? Because I could see that my emotions started to take control after I had a string of losers, specifically in my case 5 losers.
How did I fix this ? Simple, my detailed stats allowed me to see this in the first place and now after I lose 5 trades in a row, I cut my size massively.
People will read this and maybe laugh or think that is drastic. Or I should follow a position sizing strategy. And they would be right.
But there is one thing missing, this is unique to me. I know through trial and error that this works best for me to improve my confidence. This one tweak decreased my drawdown by 2%.
Might seem like not much but over time, these things add up. All from assessing my stats and realizing where I need to work on.
Would you rather spend thousands on the latest trading gimmick to try improve your trading or dig into your own results and save thousands for free by doing this analysis ?
I know what I would choose. Do you ?
Step 3- Look At Your Winning Trades.
You might be wondering huh, why look at my winning trades? These are winners so I don't need to improve on winning. Well, this is very very wrong.
Again, it sounds basic but within the trader stats I review for people, a lot couldn't understand why I would look at their winning trades.
Lots of people would say to me, I have a plan, a set of rules, a strategy and this is my entry and this is my exit. And they would be completely correct in this.
But one thing you need to allow for, is improving on it. What do I mean ?
Well, say you have a strategy that has exit criteria when a price breaks a 10day moving average. What would happen if you tweaked it and said I will cut half if it breaks the 10 day and move my stop up and see if they other half would reach a better target.
Don't get me wrong what works for you is unique to you and you may not actually need to do anything in this area.
But a cool little stat in my trading journal software called MFE (Maximum Favorable Excursion) has helped me tweak my trading with winning trades too.
This simply tracks the highest profit you had in a trade unrealized before you took profits. It measures that maximum movement in your favor during the trade.
So say you see in your stats that on average you leave $1000 on the table or whatever number is relevant to you.
This stat tells you that you can now tweak your exits to better prices.
This works best when you have a lot of trades under your belt. It is useless with a small collection of trades so be aware of this.
I need to be very clear and specific here. Don't get to over committed with this tweak. You will never ever get the top or bottom price consistently.
Also, don't go changing things too soon. I feel this needs to be repeated. You need quite a few trades to get any meaningful statistics to make changes here.
In my own trading, this tweak added 6% to my bottom line over a group of 5,000 trades.
Another simple tweak for free that added more money to my bank account.
Step 4 - Become A Specialist
You probably have heard the saying:
Jack of all trades, master of none.
Well, this is especially true to trading. If you read Market Wizards, most of the traders interviewed in it are specialists in one strategy.
They know the ins and outs of their approach to trading and don't care about some other strategy. Sure, other strategies might be making tons of money for other people but they don't concern themselves with it.
This can be tough when you are in a drawdown and you see someone else making lots of money. It's all part of the different cycles of a strategy so don't worry.
The best traders develop mastery in one strategy and tweak it to high performance.
How many profitable traders do you know that trade breakouts, mean reversion and long term all together ?
I would guess not many.
If you focus on just one thing and become a master of it, you'll do much better than being average at a lot of strategies.
Not surprisingly, the common traits I see in the stats I review for traders is the successful ones are laser focused on one strategy while the losing traders are focused on 3 or more strategies.
I specifically remember one guy I helped. We'll call him John ( not his real name) He showed me his stats and he was trading 5 different strategies.
His results were average at best. So I said to John to write down 5 reasons why he liked all the strategies he traded and 5 dislikes of them.
John realized that he was overwhelming himself with all this work and figured out that cutting his strategies down to one and focusing on it, he could become a master of it.
The result ? A much improved trader with a consistent income stream. Plus none of the added stress that comes with managing multiple strategies.
Still not convinced ? Look at Warren Buffett.
I do one thing good and leave everything else to the others
Now if one of the richest men in the world sticks to one strategy, in his case, value investing, I sure as hell am going to listen.
I don't know about you but I just could not trade more than 2 strategies. It would drive me insane.
Even looking at this blog, its trading and finance related.
I'm trying to master one niche and not talk about dog food or how to fix your dogs mood swings.
By focusing on one thing, I can become better at mastering it and offer my readers (you wonderful, smart people) a better experience by doing so.
Step 5 - Educate Yourself.
There are tons of free and paid education services available to you. No matter where you are in the trading journey, from beginner to advanced, there is always more you can learn.
If one book has just one useful tip, that could be worth thousands or millions in the long run.
You can look at my recommended book list and see if any are of interest to you if you haven't already read them.
But I also try to improve in other areas of my life too as this can also effect how I trade.
A happy mind will obviously mean better trading decisions for you.
I also believe that anyone with average intelligence can learn to trade. Don't believe me ? Well, take a look at Richard Dennis Turtle Traders Story and see if you still feel the same.
The education the new traders received transformed them into rockstars in the trading world and they openly admit they were nothing special intellectually.
Step 6 - Take responsibility
So many of us will see a drawdown in our equity and immediately think its the strategy and not actually ourselves.
I was guilty of this when I started too. But you'd be surprised to see when digging into the stats that it is actually you making mistakes thats causing the losses and not the strategy itself.
If you don't take responsibility for you results and blame others or the strategy, you will forever be in the vicious cycle of a losing trader.
Just look at Mark Minervinis results that I talked about above. He took responsibility for his own trading by realizing he had a problem with his losses.
By doing this he turned his performance from -12% to +79% immediately and improved year after year.
In my own results, taking responsibility has had drastic changes to my bottom line. All these simple tweaks outlined above add to a much better end result all because i figured out the mistakes I was making and took responsibility for my actions.
The great thing about it is you can too.
So whats the most important thing to take away from this ?
The absolute crucial importance of journalling. Look how I was able to improve by journalling my trades in detail.
Instead of spending thousands of dollars on the latest trading gimmick, by reviewing my stats I found areas to improve my profits that I never would have found with some new trading software.
I don't care what you do to start journalling, on a piece of paper, a spreadsheet, trading journalling software etc just get started and the benefits far outweigh the tedious task of plugging all the data in.
You don't even have to plug it in manually with some of the software out there today.
If you follow these steps, you might have your own aha moment like I did.
Hope this helps and best of look in your trading.