Peak Performance Trading Tips

These trading tips will help you get yourself in the best possible condition mentally to perform at a peak level. They are not necessarily new, but they are critically important. So whether you've heard them before or not, now is the time to employ them into your trading and your life. Both will improve as a result.

Tip #24: Know When It Doesn't Work

When you have a system or an idea, you must also know when it doesn't work. This concept is just the logical extension of the last tip of giving up on a good idea because you think it doesn't work. When you've researched something well enough to know 1) you are not getting the performance you want and 2) the reason you are not getting that performance, then you've made an important step in knowing that something doesn't work. Usually, the knowledge of why something doesn't work will also give you important knowledge of what to pursue next.

For example, let's look at the idea of Maximum Adverse Excursion (i.e., the idea that losing trades don't go too far against us). This gives you an idea for limiting your stops, but when you try to apply it to your trading you may find some problems. Some profit increase does occur, but this may not be that significant for you compared to the complexity of the MAE addition. The reason that MAE doesn't work is because 1) some losing trades exit at the MAE when they would have exited at much less of a loss had more room been given by a larger stop and 2) some big R-multiple winners are cut off. Since re-entry isn't allowed, those big winners are never realized. These two reasons totally cancel the effect of increasing the potential R-multiple of those winning trades that are realized.

You might take this concept and decide that's all you want to do with it. It didn't work and you know why. That's fine.

On the other hand, you can also use the reasons for “failure” as logical stepping points for your next research idea. For example, I noticed that in the few cases where big R-multiples are cut off, a re-entry signal will almost always catch them. When you do trading research, and you determine why something didn't work, it will always give you a reason. This reason could point you to areas that could give you much more profitable results.

The "It Didn't Work" Mentality

One of the least productive things you can say in furthering your market research is "It didn't work." I frequently give my clients research assignments, telling them a great area in which they can do research. I might see them again four months later and find out that they are working on something entirely different. When I ask them about the research area in which I had directed them, the response is usually "It didn't work."

I dislike that response because it totally shuts off very productive research as if there is no potential in the area at all. A much better response would be "It didn't work because…"

This sort of response indicates why it didn't work and perhaps even suggests an alternative course of action.

Let me give you a few examples of how this mentality has been used to totally shut down very productive areas of study.

• One of my Super Trader clients came up with what I thought was a very productive profit-taking exit. The exit started out with a wide stop and kept the stop wide as long as the market was moving strongly. However, when the market started to level off or when the advance started to slow, the stop would get much tighter. The net result was that one seldom gave back much profit. Doesn't that sound excellent? I thought so, especially since his system always gave a reentry signal if the market started to move again. However, about nine months later this trader was into a drawdown. I asked how his stop was doing and he said he had abandoned it. When I asked why, his response was "It didn't work when I added position sizing." There was no explanation why, which might have resulted in an alternative solution. Instead, the choice was simply to say, "It didn't work." and move on.
• I had been working with another client in developing a good system. We had discussed high R-multiple trading and he had informed me that he had a setup that could be used in the context I was talking about. He reasoned that this setup would give him signals with profits about five times as big as he was risking. Furthermore, the signals made profits, he thought, about 40-50% of the time. I thought that the signal sounded great and suggested that he only take those signals for a while. In addition, he was to research the exact parameters on the signal and to send me a daily e-mail. What happened? He never took a single signal. Instead, he stopped sending me e-mails and told me that the signal didn't work. I asked him to send me data showing me why it didn't work. His response was that he'd get to it one day, but to leave him alone until he'd gotten around to it. After all, he said, I've already told you it didn't work. Once again, a potential great idea was killed by three little words—"It didn't work."

These are just two examples of dozens that I can think of and every one of them illustrates an important point: the way you think about something can totally change your relationship with an idea. Edison was said to have had 10,000 failures before he invented a working light bulb. He may have said, "It didn't work." after any one of them, but those words didn't stop him. Instead, he determined why the method didn't work and used that information to find another good idea. At no time did he abandon the idea permanently by saying, "It didn't work!"

Start Trading: Throw Those Excuses Out the Window

People make all kinds of excuses as to why they cannot get involved in investing or trading the financial markets. In this article, some of the most prominent are debunked.

"I don't have time"

Despite being one of the most frequently heard, this is probably the most pathetic excuse for not trading there is. Why? Because the availability of technology and information in the modern day means that we can operate in literally any time frame we want. Many people, when they hear "trading", think it means sitting in front of the computer all day. While that certainly is one form of trading, most of us do not have the schedule to allow us to dedicate hours each day to monitoring the markets. The good news is that we don't have to in order to trade effectively.

I will use myself as an example. My college coaching position has me frequently in the gym, in meetings, and on the road. What's more, I run a club program and a couple of businesses on the side. In 2004, even though there were long periods when I did not trade at all, and I probably only put on a dozen total positions all year, I was still able to make 200%+ in the stock market. If I can trade given my schedule, and have performance like that, anyone can.

"I don't have the money"

In the past, this was a pretty viable excuse for not trading. These days, though, one can trade with relatively little money. Transaction costs have dropped dramatically over the last decade and there are more trading options than ever before. There is one particular trading platform which allows an individual to put on trades of at little as $1 in value, and they have no minimum account size requirement.

Is it better to have more money? Absolutely. The more capital you have at your disposal, the better are your available options and the more actual money you can make in raw dollar terms.

Having more money is not always a good thing, though. For the inexperienced trader, it is better to have only a little money at risk. Why? It is the same as anything else. Just like anyone new to a skill make mistakes as they are learning, so do new traders. And just as a coach would not willingly throw a new player in to a championship game against experienced opponents, neither should those new to the markets to take on large trades and put significant portions of their assets at risk. It's common sense. Better to make the inevitable mistakes when there is relatively little at risk.

"It's too risky"

Trading is only as risky as you make it. If you take risky trades, then trading is risky. If you don't, then it isn't. There will always be the risk of losing money on a trade. That is completely unavoidable. But that could be said about all of life.

Driving is one of the most risky things in the modern world, but we still do it. We reduce the risk by obeying traffic rules, planning our route, wearing seatbelts, paying attention, and all that. Does that completely eliminate the risk that of ending up in an accident? No, it doesn't. Nor does it necessarily keep us out of traffic jams or from getting lost. We understand the risks, though, and weigh them against our need to get places in a timely fashion.

Trading is the same. We do it because it helps get us where we want to go, in this case financially. There are going to be hiccups along the way, but if we are focused and conscientious, we can minimize the risks, and potentially the damage an unfortunately turn inflicts, and remain on course.

"It's too complicated"

Technology and competition have combined to make trading so much easier than it has ever been before. All it takes is a couple of clicks and you can execute a trade, check your positions, get news, and anything else you need to do. The fact that you are reading this article says you have all the basic skills necessary to trade or invest.

Can trading be complex? Sure it can. There are those in the markets who use complicated software, mathematical algorithms, even artificial intelligence. None of that is necessary, though. Some of the best traders use little more than price quotes or a simple bar chart. How intricate you get is strictly a matter of personal preference, not necessity.