Weekly Motivation - Continuously Improving Your Results

by Phillip Wengier, Saratoga Online Founder

As traders we are constantly told that we need to have a trading plan to guide our actions in the face of unpredictability and uncertainty in the markets. The plan should contain our objectives, a methodology or "our edge", and our strategies and tactics relating to entries, exits, risk etc.

Experienced traders are all familiar with trading plans. However, the tricky and sometimes touchy issue is how we are performing compared to our plan, and whether or not we are improving our performance over time.

As professional traders (or investors), we should be constantly concerned about the answer to this question because reviews of actual results vs our trading plan can identify areas that can be improved. Actively participating in the process of continuous improvement should be a primary element of our trading and investing discipline.

Have you ever found yourself happy to review your performance after a period of success? We sometimes shy away from the same review when the results are not so good – it's painful. As professionals, involvement in the process of continuous improvement should be a habit regardless of the investing outcome, an activity or discipline that is undertaken regularly as a standard part of our routine.

What is the continuous improvement process?
Step 1 PLAN – Prepare a plan for each of your investments with sufficient documentation to allow effective review in the future.

Step 2 DO – Implement your investment plan in the market.

Step 3 REVIEW – Check the outcome of your investment against the objective you set yourself in your original plan. Review your actions compared to your plan to see where the improvement opportunity lies. The objective is to identify the single most important factor you can change in order to do better.

Step 4 IMPROVE – Implement the single factor you have identified by putting the new practice into action.

Then simply repeat this process . . . . . . . . . . . . . . . forever!

Change is never easy. However, if we don't make continuous improvement a central part of our investing arsenal, we will ultimately fail. It's that important.

Weekly Motivation - More Thoughts

Most professional traders would be able to teach you to trade their system in about 2 hours. Why then do so few go on to achieve profitable results, even after being taught by some of the best minds of the trading world? It's because the majority of people are not instinctively set up to trade. There are very few naturals in the trading world. Successful traders have had to learn how to trade and how to handle the inevitable losses that will ensue.

Ed Seykota’s achievements rank him as one of the best traders of all time. In times of trading pressure, I find it useful to remember some of Seykota’s wise thoughts;
“There old traders and there are bold traders, but there are very few old, bold traders”.

When asked for some of the main contributors towards his success, he states:
“I handle losing streaks by trimming down my activity. Trying to trade during a losing streak is emotionally devastating. Trying to play “catch up” is lethal. Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money”.

There are two main traits that Seykota looks for to identify the winning trader personality:
He/she loves to trade;
and He/she loves to win

Those who want to win and lack skill can find someone with skill to help them, but they must have the desire in the first place.

95% of traders never seek to improve their overall mindset, and as a result inadvertently deprive themselves of extraordinary profits. These profits are achievable only to the 5% of traders who are prepared to get out of their comfort zone and work on their own innate deficiencies and acknowledge their personal strengths. Your level of financial success will rarely exceed your level of self-development. The good news is that it is your choice to be in the 5%.

Weekly Motivation - Psychology in The Trade Again

PSYCHOLOGY IN THE TRADE

How many times have you been in a trade and taken a profit only to see the market roar significantly further in the direction of your original position? How many times have you held on to a position for what looked like a significant move developing, only to see your nice paper profit disappear and perhaps turn into a loss?

Of course if you have traded for any length of time you have experienced both of these situations. How do you avoid them? One of the keys to having the discipline to stay in the game is to make peace with the fact that you simply cannot avoid them.

I try to remember these three points while in a trade:

(i) The market can go anywhere. There are things less likely but virtually nothing is impossible. Don't get caught thinking the market can't go any lower or higher, because in those cases it usually does.

(ii) Remember that what happened in the last trade is of little significance to the current trade you are in. In fact it may actually have an inverse relationship. Do not change your exit plan
based on the meaninglessly small sample size of your last trade and or last few trades.

(iii) The large majority of the time short term day traders, or swing traders who are in for a few days, are going to be more successful by taking profits while the market is going your way. Pay yourself!

Weekly Motivation - Aiming for the Right Target in Trading 11 of 11

By Walter T. Downs

OBSERVATION #11

Losing traders often take themselves quite seriously and seldom find humor in market analysis or the trading environment. Successful traders are often the funniest and most imaginative people you will ever meet. They take joy in trading and are the first to laugh or relate a funny story. They take trading seriously, but they are always the first to laugh at themselves.

CONCLUSION:
Its no wonder that one of the first things psychiatrists test for when treating a patient is whether or not the patient has any sense of humor about his affliction. The more serious the tone of the individual, the more likely that insanity has set in.

SUMMARY OF CONCLUSIONS AND OBSERVATIONS

Both winning and losing traders consider trading a game. However, winning traders take the game not as a diversion but as a vocation which they practice with an intensity and dedication that rivals the work ethic of a professional athlete. Since the athletic metaphor seems appropriate, I will sum up on that note.

If trading were a game like basketball perhaps novice traders would realize more readily that what appears as effortless ease of the professional trader in sinking three-point shots is in fact the product of endless hours spent shooting hoops in deserted back yards and empty playgrounds.

As in sports, the governing factors are internal and external. We deal with the market and ourselves. Both are like weapons and they can be used proactively or destructively. Each and every trade should be taken with professional care and planning.

In order to bring these observations home in an even more compelling form, lets add an element of ultimate risk to life and limb and say that our "sport" is more like target practice with a handgun. While it is certainly important to hit the target, it is more important to make sure the gun isn't pointed directly at ourselves when we pull the trigger.

Minute differences in how we take aim in the markets can have amazing impact on the final outcome. The difference is clear: One method is accurate target practice. The other is Russian Roulette.

Weekly Motivation - Aiming for the Right Target in Trading 10 of 11

By Walter T. Downs

OBSERVATION #10

Losing traders often fail to include many factors in the overall trading process that affects the probabilities of overall profit. Winning traders understand that winning in the markets means "cash flow". More cash must come in than goes out, and anything that effects this should be considered. Thus a winning trader is just as thrilled with a new way to reduce his data-feed costs or commissions as he is with a new trading system.

CONCLUSION:

ANYTHING that affects bottom line profitability should be considered as a viable area of study to improve performance.