Lessons From My Trading: Turning Trading Into Learning

Back inwards May, I wrote nigh an experiment I was conducting inwards my trading.  Since that time, I’ve made mistakes together with learned valuable lessons.  Out of those has emerged a promising consistency inwards my profitability.  I am quite confident that I own got many to a greater extent than lessons to larn together with mistakes to make.  So far, however, those lessons own got been constructive ones, then I idea I’d part the most of import ones:

1)  Since May, I own got returned to my daytrading roots.  In that May post, I outlined 3 patterns that anchored my trading.  My trading consistency (hit rate) together with profitability increased dramatically when my trading of those patterns was intraday.  When I focused on the larger picture–patterns together with cost projections from those patterns–I lost my experience for the marketplace together with became ill-prepared for variations inwards cost paths.  When I used the patterns equally context merely focused on the minute to minute menstruum of marketplace behavior, I could genuinely experience whether or non patterns were playing out.  This has give-up the ghost important, non solely inwards terms of managing peril proactively (exiting trades when the menstruum of book is diminishing inwards my direction; non when prices own got reversed together with hitting my stop), merely also inwards terms of chance administration (sizing upward trades inwards which flows trouble upward with the patterns).  Fast pattern-recognition is my greatest cognitive forcefulness equally a trader.  By focusing on longer-term marketplace behaviour together with patterns, I was neglecting this forcefulness together with that led to trading that was non consistently profitable.  It’s been a slap-up reminder for the psychologist:  success comes from leveraging who nosotros are at our best.

2)  Since May, I own got refined quantitative models that forecast ES prices 3-5 days forward.  The greatest refinement has been to model non-linearities inwards the data:  situations inwards which the relationships with predictors together with outcomes are unlike at extremes of the distributions.  For instance, it’s non also odd for average values of an indicator to move unrelated to time to come cost action, merely extreme values to own got predictive significance.  Modeling those non-linearities has led to ameliorate models.  (They genuinely are quantifications of the patterns mentioned inwards the May post).  Per the start out yell for above, however, my trading has been best when these model forecasts human activity equally background together with context.  The successful trading comes from seeing order/trade menstruum trouble upward with the forecasts.  Even the best forecasts predict solely a pocket-sized fraction of amount variation inwards frontwards prices; trading solely when flows trouble upward with forecasts has greatly improved the hitting rate.

3)  I review every merchandise together with what I’ve done correct together with wrong.  It is no exaggeration to state that I pass much to a greater extent than fourth dimension reviewing merchandise results, reverse-engineering success together with failure, together with researching the lessons from those than genuinely trading.  The intensity of this deliberate exercise has greatly accelerated my learning curve.  Increasing the selectivity of the trades I accept (per the 2 points above) together with maximizing my review procedure has been much to a greater extent than successful than spending a lot of fourth dimension inwards forepart of the covert together with less fourth dimension inwards review.

4)  The publish 1 psychological predictor of the success of my trades is my cognitive state acre putting the trades on.  If I am highly focused together with own got a clear feel of both larger movie together with moment-to-moment flows, the merchandise is much to a greater extent than probable to move successful than if I lack that serenity feel of agreement together with mastery.  A slap-up instance of a merchandise lacking that feel would move 1 where I am entering because I’m concerned nigh missing a move.  Almost invariably, the timing on such a merchandise volition move poor.  It’s inwards the quiet, focused state that the designing recognition volition boot inwards together with I volition own got a much ameliorate experience for when flows are turning inwards the expected direction.  Eliminating distractions acre trading has been crucial for me. 

5)  Where I own got the greatest progress to brand from hither is inwards proper merchandise sizing together with seat management.  What I’m finding is that it is much ameliorate to boundary the publish of trades taken based upon the higher upward iv criteria together with sizing those trades up, rather than taking to a greater extent than trades together with sizing them moderately.  I’m also finding it helpful to operate this increased sizing to facilitate a scaling out of positions, then that the portfolio tin sack do goodness from both short-term cost reversals together with ongoing tendency behavior.  Because I solely merchandise 1 instrument, my diversification comes from differentiating fourth dimension frames.  This requires carve upward planning together with review for the curt together with longer trades, together with that is a piece of occupation inwards progress for me.  The challenge is to ensure that the longer-term planning together with trading procedure does non bleed over into the flexible administration of the shorter-term positions mentioned above.

My promise is that this self-reflection tin sack serve equally a form of model for your ain trading.  Your lessons volition move unlike from mine, because you lot are unlike from me together with your trading is unlike from mine.  The overlap volition move inwards the procedure sense:  yesteryear treating your trading equally a functioning activity, learning from mistakes together with successes, together with feeding those lessons frontwards into your time to come trading, you lot tin sack evolve dramatically.  If you lot write a spider web log together with thoughtfully review your lessons learned, yesteryear all agency allow me know together with I volition move happy to link inwards the spirit of usual learning!

Further Reading:  Turning Setbacks Into Wins


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