No matter how successful you are at trading there is always room for improvement. One of the main reasons that great traders are great is that they are never satisfied with their results and want to find some new approaches and ideas to help them produce even better results. They ask themselves constantly what they can do to produce more profits.
The only thing we know for certain about the market in the year ahead is that there will be both ups and down. It isn't necessary, and it may even be counterproductive, to predict what might happen. Once certainty is that there will be great opportunities. Our job is to profit from those opportunities the best we can. Here are five tips to help you maximize profits in 2020
- Be more aggressive. Hockey great Wayne Gretzky once said, "You miss 100% of the shots you don't take." Hedge fund titan George Soros said, "It is not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."
If you are making money with your trades then the best move is to do more of what is working. Increase either the size of your trades or the frequency. The problem is that we will feel stress when we take on bigger positions and more risk and that influences the way we handle our trades. To be more aggressive, we must embrace the fact that we are going to encounter emotions. If you aren't at least a little worried about a trade then you almost certainly are not taking on enough risk for it to matter.
If you are more aggressive with your trading, then it is also necessary to be more disciplined. Aggressiveness without discipline is gambling.
- Don't overreact to short-term volatility. Patience is the key to winning trades. One of the most common mistakes I see new traders make is that they overreact to meaningless volatility. They look for reasons why a stock has moved a small amount and are quick to give up on a trade even when the technical conditions are still good and there is no change in their trading thesis. There is an inclination to think that traders should always be going something, but the majority of the time it is better to just ignore a stock that isn't doing much. As Jesse Livermore said, "it never was my thinking that made the big money for me. It always was my sitting." Give trades time and room to work.
- Trade incrementally. Many traders think of trading as the process of making a single buy and sale of a stock. They want to time a single entry and exit as best they can to produce the optimal profits. This approach forces traders to be more precise than is possible and it relegates them to a single time frame.
The better approach is to think of a trade as a continuum. You enter the trade by making multiple buys that help you to get the best average entry price, then you exit it in the same way. This allows you to diversify by time frame and allows for greater aggressiveness with the stocks that you like best.
Once you let go of the idea of a single buy then you look forward to pullbacks and random volatility. You use the uncertainty of the market for your benefit rather than fight it.
- Don't make predictions. Focus on price action and don't be anticipatory. Many market players think that trading is about predicting the future. The truth is that consistently predicting what the market or a stock might do is impossible. What works is to think strategically. Ask yourself what action you will take if your trade moves in this or that direction. What will be your reaction to certain events or price action? Don't try to predict what will happen, but be ready with a strategy and then make a move as things unfold.
The biggest losses that most market players suffer comes from inertia. They have no strategy or plan. They make predictions and then when it doesn't work, they just sit there and keep hoping that they will eventually be right.
- Keep accounts close to highs. When you start losing money, get out of the market. Nothing is more unproductive than making up losses. A 50% loss requires a 100% gain to just return to even. Think of how unproductive all that work will be.
The most powerful tool that traders possess is the "sell" button. Selling is a very cheap form of insurance and it is very easy and cheap to rebuy a stock if you believe that the risk has declined.
If you keep your accounts as close to their highs as possible then you have the great power of compounding working for you. You are able to earn gains on your gains and that is when you build real wealth.
This is just a brief discussion of some key trading topics. During the year ahead I'll be exploring them in great depths as I discussion their application to actual stock picks. I'll hope you'll join me in 2020 for the best trading year ever.
