Plan your work and work your plan.  Successful businesses have written operating plans. Winning sports teams follow a written game plan. The best traders approach trading as a business, and emotional trading can be very detrimental to your long term success. By developing and following a written trading plan, you can focus on avoiding things that have proven costly to you in the past, and work on repeating that which has been profitable. Often a written trading plan can help one strive to eliminate repeating costly mistakes in their process, or in many cases, actually just establish a process. Basic items to address in the planning and development phase include, but are not limited to:

Tradable Markets - Identifying which markets to trade or exclude helps narrow the focus of the trader and allow them to dial in. I trade U.S. Listed stocks with a market cap and volume minimum requirement and certain higher volume ETFs. I do not trade futures or options.

Time Frame - Day, swing, or longer term position trader. Some may opt for more than one, but as I discuss in item 3, I prefer to focus on one method and time frame.

Risk Structure - Overall portfolio risk (heat), then narrow it down to risk limits by market, industry, and then individual position risk limits.

Entry and exit signals - Specific rules for entries, stop loss levels, and exits from winning trades, whether scaled or all in/all out.

System Parameters - What are the return goals for the accounts and what are the drawdown thresholds? Once a trader sets a realistic return expectation, they can start to set up position limits in line with the return expectation. On the other side, many traders stop taking new positions for a specific time period if they reach a pre determined drawdown level.     


One major reason that many traders fail or wash out is because they have unrealistic return expectations. Many think it should be easy to double an account in a year or less because it is smaller in size, maybe $5,000 or $10,000 as an example. What they fail to realize that in shooting for extraordinary returns, they often take on extraordinary risks. What percentage of professional  fund managers achieves 25% a year on a consistent basis? Novice traders often think they can achieve that return or more because of a smaller account base. If it were easy, everyone would do it. The fact is if their account is just profitable for the year, they are ahead of the majority of traders. While many traders scoff at making 2% in a month, the fact is over the course of a year, just 2% a month, on average equates to 24% for the year, which would put one in the upper echelon of traders over time. 


"He who chases two rabbits catches neither" - Chinese Proverb.  Trading is a very difficult endeavor, there is nothing easy about it. A trader who focuses their time and effort on one specific market, style or approach greatly increases their chances of mastery and success than one who tries to trade many different approaches. Specialized knowledge has been said to be a key character trait of extremely successful individuals in any endeavor. While the ability to get unlimited financial news and data 24 hours a day, and execute trades with the click of a button seems to offer benefits, in reality more often than not it dilutes the traders performance. There are literally dozens of ways to trade profitably over a variety of strategies and time frames. A trader only needs to excel at one. Ideally, a trading style needs to suit the traders personality. There is no one size fits all. A very good shorter-term trader may not be able to execute a longer-term trend following program 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 conducive to the traders personality. 


Billionaire trader Bruce Kovner said novice traders often trade three to five times too big, and one of his key pieces of advice would be to under-trade. Likely the single biggest reason that traders fail is overtrading. Overtrading does not only mean trading too frequently. It also can be trading too many open positions, markets, or setups. Having too much open risk in their overall accounts, or in positions. Having too many correlated positions, looking at charts and data too often, or any combination of these. Cutting winning positions too early is also detrimental to long term performance. Big winners are needed to offset the inevitable losing trades and create excess return. Traders often overtrade because they have unrealistic return expectations, as discussed in item 2, and think they need to take excess risk to achieve their unrealistic return expectations. Dialing back my trading frequency and size drastically increased my returns over time as drawdowns became more shallow, I learned how to sit in big winners longer and my losing trades had much less impact. 


What gets measured gets improved. Steps 1 through 4 in this post lead to Step 5. Once a comprehensive, written trading plan is put into place which identifies all aspects of the trading process, and realistic return and risk expectations are established, the trader can track and evaluate their progress and performance. Tracking each trade, each closed position and performance stats can help a trader objectively identify strengths and weaknesses in their trading program. This step can help them refine and steps in their process which may need to be reworked, improved or eliminated. Does a specific strategy, market, or time frame perform much better than others? Are there any common traits in winning trades and losing trades? What I have decided to do over time is focus on my strengths and improve or eliminate any areas of weakness. As I realized over time that I was not profitable in shorter term discretionary trades, options and futures, I eliminated these form my approach. By tracking my progress, I learned that my strong suit is intermediate to longer term position trades using stocks and ETFs. I decided to narrow it down to my strengths, focus exclusively on that and stopped trying to excel at other strategies.

This is a brief overview of 5 items that have helped me improve my performance over the years, and are fairly simple to implement.