A SIMPLE WAY TO IMPROVE YOUR TRADING RESULTS

It is a fact that most traders are not making money and almost always the main reason is their own short comings, their own goof ups or their unwillingness to do what needs to be done when it needs to be done without hesitation. Some of them even come to realize that it is their own fault, but then do little about it.

It is not because they don’t wish improvements. It is just that they may not know what to do about it! This is so whether one is trading stocks or Cryptos or Futures or Commodities. The problem remains the same.

Every now and then the reasons may be something other than yourself. Like, recently, the Ukraine thing came out of the blue and clobbered all assets. Oil and Gold rose though so it is not as though bulls got taken out. It just mattered which asset class you were in. But, assuming that everyone of us here are into equities, then most of us took a hit. There were a few who benefited by going short. But short selling is an art that is practiced by a few. Most people are bulls and almost perennially long in the market. So, a Ukraine-type event will have a sharp impact on profitability.

But barring a surprise event like the war, almost the rest of the time the fault lies within ourselves. So, the solutions also lie within.

One of the solutions that can be attempted is a simple one.

Identify some of the problems that you may be having. They could be stuff like

• I enter too late.
• I exit too early
• I don’t keep or observe stops
• I don’t have any idea of how much quantity to trade.
• I have large losses and small profits.

Etc.

Note that this is just a small list and each of us may have many more items to add. If you do have, then please add to the list, because what I have to say next has lot to bear on what is included in the list above.

Look at the list again (after completing your own additions). These are your problem areas. Trading and Investing in the markets is no different from running a business. The principles are the same. Now, what do you do when you have a problem in your business? You identify it, call a meeting of those involved and thrash out a solution. If you can’t find one, then you call in a consultant to do the identification of the problem and offer solutions.

You need to do the same. From the list identify the one problem that can solve a few others if that one problem is solved. For example, take the first one that I have mentioned- entering a trade too late. This means that you needed to be sure that the move would continue so you wait for several confirmations to come in. Or, it was a FOMO thing- that you were afraid of missing out on something that seems like too good to miss. Either way, the prices have run up some distance. The first thing which happens with this is that your stops become far away. Thus, your end of risking more on the trade. You can mitigate that some buy taking a smaller quantity or only an initiating quantity. But most of us are prisoners of a certain quantity being done (500 or 1000 shares, many lots in futures, a certain fixed size of the contract etc. etc.) and without much thinking we trade the same quantity. Thus, you now have two problems added to the list-one, larger stops and two, bigger quantity. If things don’t go as per plan, then you end up with a large loss! So, one error leads to a few others getting added!

So, go over the list and you will find this sort of correlation among many of your problems i.e. it is one or two main problems that are probably causing the rest too. Hence the most important thing is to identify those few critical problems- it is not easy but it is not difficult either. Just needs a little effort.

Now that you have done this first step, the next is to find a solution to it. The first solution for all problem is to get rid of it completely if possible. Like, in a surgery, the surgeon just cuts out that part and gets rid of the problem. But many times, this is not possible. Then what we need to do is to find a solution that contains the problem or minimizes its impact. Like, in cancer, if there is spread, we do chemotherapy or radiation to contain the spread- it doesn’t get rid of the cancer though. Just limits its impact.

In the example above of entering late, one can attempt to solve this both ways. You can set a threshold for entry based on a signal. If the threshold is passed already, then you just let the trade go, no matter what. This way you don’t allow the problem to surface at all. A second solution is to create a method that manages to signal you early enough about a move to ensue- such as a pattern formation and breakout. Or many such technical setups that can be learnt. This will reduce the problem of a late entry. All you need is some kind of an alert mechanism (probably a software like my Neotrader) that tells you when some opportunity is getting set up. Hence charts (eg. Trading View) and another augmenting software (eg. Neotrader) can help greatly reduce this error. Many times, software like Neotrader can even help you overcome the lack of knowledge of chart reading!

So, the process is to identify one of the problems and then go to work on it. If you can’st find a solution yourself, ask for some help. This is what businesses do. If they don’t, eventually, that business goes under. Same shall happen to you. If you don’t address your problems, sooner or later, you are going to go down too.

Since we are here to make money and not to lose, it becomes paramount that we address our trading and investing like business corporations do. The solutions are very much there and are not really complicated. All it needs is for us to look at them -not sweep them under the carpet or think that they will magically solve themselves in the long run. That wont happen.

You are (almost always) the problem. The solution too can come only from you.