Many traders are simply putting in the hours, thinking that if they spend enough time around the markets, analyzing charts, reading books, and taking online courses, their skill level will improve. While it’s important to have a solid understanding of trading, putting in extra hours won’t necessarily increase a traders potential profit. In fact, many traders struggle to make consistent profits. In today’s article, we are going to share five tips to help improve your trading results.
1. Plan Your Work
All successful businesses have written operating plans, winning sports teams follow a game plan, and even those in construction follow plans to get the job done. Just like in other applications, having a plan is essential in trading. The most successful traders approach trading like a business, and emotional trading can be extremely detrimental to a trader’s long-term success. By developing and following a written trading plan, traders and investors can focus on avoiding errors that have proven to be costly in the past, and work on repeating that which can be profitable. Often times, a trading plan can help traders strive to eliminate costly mistakes in their trading process. Basic items to address in the planning and development phase include, but are not limited to:
Tradable Markets – Traders need to identify which markets to trade or exclude to help narrow their focus and allow them to dial in.
Time Frame – Determine whether you want to day trade, swing trade, or follow a more long-term approach. Some opt for more than one, but many traders have better success focusing on one method and time frame.
Risk Structure – Identify overall portfolio risk, then narrow it down to risk limits by market, industry, and then individual position risk limits.
Entry and Exit Signals – Set specific rules for entries, stop loss levels, and exits from winning trades.
System Parameters – Define the return goals for the accounts and what are the drawdown thresholds. Once a trader sets a realistic return expectation, they can begin setting up position limits in line with the expected returns.
2. Establish Realistic Return Expectations
One of the biggest reasons traders don’t succeed or wash out is because they set unrealistic return expectations. Many expect to easily double an account in a year or less because it is smaller in size, maybe $6,000 or $11,000 as an example. However, when traders are shooting for extraordinary returns, they often come with some risks. Instead of setting return expectations high, setting more realistic expectations will most likely be more successful. While there are some traders who would turn their nose to a two percent profit in a month, the fact is over the course of a year, just two percent a month, on average equals to 24 percent for the year, which would put one in the upper degree of traders over time.
Focus on One Specific Market, Style, or Approach
Trading can be a challenge, there really is nothing easy about it. Traders that focus their time and effort on one specific market, style, or approach, are more susceptible to success than those who try various trading approaches. Specialized knowledge has been said to be a key character trait of extremely successful individuals in any endeavor, especially trading. While the access to financial news and data 24 hours a day, and the ability to execute trades with the click of a button seems to come with some unique advantages, in reality, more often than not it causes a trader’s performance to diminish. There are a variety of ways to trade profitably over a variety of strategies and time frames. A trader only needs to focus, and excel, at one. Ideally, a trading style needs to suit their personality. There is no ‘one strategy fits all’ in this situation. A very good shorter-term trader may not be able to execute a long-term trades as well, and someone wired to be a longer-term trader may not be able to execute a shorter-term strategy. The key here is to find a trading approach that is contributive to a trader’s personality.
Undertrade, Avoid Overtrading
One of the biggest reasons traders fail is due to overtrading. Overtrading does not only mean trading too often, but it can also mean trading in too many open positions, markets, and setups. It can also mean having too much open risk in overall accounts or positions, having too many correlated positions, looking at charts and data too often, or any combination of these. Cutting winning positions too early can long-term performance. Big winners are needed to offset the inevitable losing trades and create an excess return. Traders often overtrade because they have unrealistic return expectations as discussed above, and think they need to take additional risk to achieve their unrealistic return expectations. Dialing back the trading frequency and size can significantly increase return over time.
Record and Track Everything
What gets measured gets improved. Once a comprehensive reading plan is put together which identifies all aspects of the trading process, and realistic return and risk expectations are established, traders can then track and evaluate the progress and performance of their strategy. Tracking each trade, each closed position and performance stats can help a trader objectively identify strengths and weaknesses in their trading strategy. This can help them refine and steps in their process which may need to be reworked, improved or eliminated.
Automate Trading Strategies
There are many benefits of using automated trading systems. Not only does automatic trading strategies minimize emotional investing, ensure consistent and diversified trading, and is less time consuming, but it can help increase returns while mitigating risk.
One of the best ways to automate your trading strategies is by using AlphaDroid. With AlphaDroid, traders can better analyze, construct, and compare investment portfolios. The investment portfolio management software helps advisors by providing a precise and disciplined approach to productively catch the best days in the market and avoid the worst. To learn more about AlphaDroid and our elite investment portfolio management software, contact our team today!
By following these six helpful tips, you too can improve your trading results. If you are interested in trying AlphaDroid, try your free trial today!