Learning by doing doesn’t really exist in trading and executing trades alone or randomly flipping through time-frames and staring at charts all day long will not make a difference either.
Luckily, there are a few very specific things that can help traders improve their skills rapidly and very targeted.
Practice, expert performance and trading
First, let’s review what the research about practice and expert performance has discovered and how trading fits in here. The 5 following discoveries and statements have been extracted from the journal “The Influence of Experience and Deliberate Practice on the Development of Superior Expert Performance” by K. Anders Ericsson and we put them into trading context. The paper linked is also a fascinating read I recommend checking out.
1) Practice is designed to improve specific aspects of performance in a manner that assures that attained changes can be successfully measured.
In trading: Becoming better and improving some areas of your trading due to practice has to have a measurable effect on one’s performance. Without tracking performance it is not possible to quantify the effect practice has, or whether it has any effect at all.
2) The principal challenge to attaining expert level performance is to induce stable specific changes that allow the performance to be incrementally improved.
In trading: You do not have to go from 0 to 100 immediately. The key to long-term success is consistent and steady short-term improvements. Small adjustments and tweaks can quickly add up even though short-term results are not that exciting.
3) Once we conceive of expert performance as mediated by complex integrated systems of representations for the planning, analysis, execution, and monitoring of performance, it becomes clear that its acquisition requires a systematic and deliberate approach.
In trading: How do you approach your trading? As we will see throughout this article, a structured and analytical approach is the most effective way to improve as a trader. Every day, write your trading plan, follow the same routine, analyze your trades after they happened and enter them in your journal. Consistency, effort and attention to detail are key attributes to effective practice.
4) In their research on sports, Deakin and Cobley (2003) found that ice skaters spend a considerable portion of their limited practice time on jump-combinations they have already mastered, rather than working on the yet-to-be-mastered combinations, where there is the largest room for improvement.
In trading: Don’t try to reinvent the wheel. Focus on what you are already good at and improve in this field. If you are a decent technician, do not suddenly start to learn about fundamental analysis. Stick to one approach, learn and master the basics before exploring other fields if you still find that there is a need for that.
5) The effects of mere experience differ greatly from those of deliberate practice where individuals concentrate on actively trying to go beyond their current abilities.
In trading: Just staring at your charts and acquiring ‘screentime’ will only have a limited effect. Follow a structured and analytical approach that will have a measurable effect, rather than aimlessly flipping through trading instruments or timeframes hunting for entry signals.
Trading skills and becoming a better trader II
To improve as a trader, you should work on your skills and attributes and focus on spending your energy where it will have a positive effect on your trading. The following attributes and skills are necessary for a trader to develop.
Discipline in trading encompasses a variety of different aspects. First, you have to be disciplined to follow your rules. Premature and impulsive decisions where a trader violates his trading rules are a very big performance killer. Second, you need the discipline to regularly write a trading plan for the upcoming trading days and be disciplined enough to journal all your trades afterward.
Also, look at your life in general and start practicing discipline away from the charts. Synergy effects can also help here.
Knowing when not to trade is often more important than finding the next best trade, especially for new traders.
What differentiates the best traders is that they have a very intimate understanding of their trading method and they know when not to trade Amateurs, on the other hand, are always trying to squeeze in a trade.
How does your trading day look like? Do you randomly flip through timeframes and various instruments, hunt for entry signals while watching TV, browsing the web and chatting with other people? Trading is a high-performance activity and you cannot expect to outperform the market while treating trading as just a hobby. While trading, do nothing else! Focus exclusively on your charts and your routine.
If you are looking for other peoples’ opinions to justify trade decisions, long-term success in trading is a long way away. It is important that traders make their decisions self-determined and independently. Your trading system should provide the framework for all trading decisions and YOU have to follow it religiously.
We touched it briefly and we mention it again. Planning your trades ahead of time is important. A trader needs to develop the discipline to write a structured trading plan BEFORE the markets open, understand what to expect for the day and what you want to do. If you arrive at your trading computer unprepared you haven’t done the work necessary.
Together with a trading plan, a trading journal is the #1 tool when it comes to developing trading skills. If you do not track what you have done, it is impossible to know what to change to become better. Keeping a trading journal requires effort and discipline, but this is what developing skills and practicing is all about.
Honesty and responsibility
This brings us to the last and most overlooked attribute. Amateurs and consistently losing traders are delusional up to the point that they attribute their repeated failures to market inefficiencies or unfair and unforeseeable circumstances. They do not see that their own actions and decisions are causing them to lose money.
Tracking your trades and performance in a trading journal removes all subjectivity and confronts you with hard facts. Only if a trader acts fully disillusioned and accepts complete responsibility for all his results, he can develop and improve his skills.
Conclusion: Plan your trading success
Becoming a profitable trader is not an accidental product – it requires time, effort and obeying certain principles. In any profession and field, developing skills requires deliberate practice and trading is no different.
The Edgewonk trading journal takes out the guesswork, presents only hard facts and shows you exactly if your approach is working or not. But even more important, it shows you specifically where you are losing money and why.
If you are tired of not seeing the results you are after, become serious today and start by joining Edgewonk. It’s the easiest and most effective way to make measurable improvements in your trading.
Full credit to: Rolf