Like many market players, I've been looking back at my trades over the past year to see how I can improve my results. There are plenty of trades that make me cringe, but in many cases I didn't make any big mistakes and did the right thing based on my trading methodology.
The one thing I want to work on in the year ahead is being more aggressive with trades that are working. Every year since I've started trading I have said that I need to increase the size of my trades, but it isn't easy because doing so also requires that I handle some trades differently. I have good results overall, and I don't want to mess that up with a new style.
It is very easy to say after the fact that I just need to eliminate the bad trades and go big on the good trades. That is painfully obvious and isn't a real solution. Trying to determine which are the good trades and which are the bad trades, in real time, is the challenge.
Having a higher level of confidence will help to some degree but you also have to have a greater tolerance for bad trades to make that work. No matter how good of a trader you are, you can expect to be wrong at least 40% or more. It is the nature of what we do. If you go too far trying to eliminate the bad trades you will end up doing almost nothing because there is no way to eliminate risk. The only way to be aggressive is to be disciplined at the same time and be quick to admit your mistakes when you make them. Sometimes you have to make a dozen little bad trades before you see the big profitable one that wipes out all the little losses.
The way I'm going to approach being more aggressive with my trades isn't to buy bigger size but to buy more frequently. In other words, if I'm in a trade that is working I will look to add to it a number of times. I find it easier mentally to buy smaller size at various prices rather than to buy one block at a certain price. It gives me a sense of flexibility although that may not really be the case.
Quite often, I sell something prematurely. If I do, I'm not going to take that into account if I still like the stock. I will simply rebuy as if it's a new trade and not dwell on my prior buys and sells.
I had the opportunity to try this incremental buy approach today with Uni-Pixel (UNXL), which I mentioned in my previous post. I already had a position in that stock coming into the day, but added to it several times this morning as it acted in a manner I liked. I flipped some out to cut back my size and now I'll look to add back if it weakens. The chart suggests to me that it can run higher, so it is just a matter of positioning. A single buy and a single sell don't allow me to be as aggressive as I'd like to buy and I would have a greater tendency to be out of the stock totally if I did that.
I'm also going to spend more time writing about this sort of thing in the year ahead. I'm looking forward to a market that allows us to do something other than react to news headlines.