Instantly Improve Your Trading With These 5 Steps

Last Updated on November 24, 2022 by Quantified Trading

Would you like to become a better trader? Or would you like to improve your trading? In this brief article, we recommend 5 steps that can instantly improve your trading (and investing).

Step 1: Backtest

Readers of this blog should be no surprised that the first step we recommend is to start backtesting. How do you know if you are on the right track if you have not backtested your trading strategy?

We believe the number one reason why most traders fail is that they don’t have any positive statistical edge. No money or risk management rule can ever help you turn that deficit around.

If you have not done it yet, make sure you backtest all your strategies. If they are not specific to put down into quantifiable trading rules, then skip it (unless you have a trading journal that backs it up).

Step 2: Trade many different markets

There is power in automation and mechanical trading, and make sure you use it to your advantage.

Stop looking for the single best trading strategy, and instead utilize the power of diversification and non-correlation. Make sure you trade different time frames, different asset classes, and different market directions (long and short). Yes, short strategies are both hard to find and trade, but adding just one or two can improve your overall portfolio a lot (is it possible to make money shorting?).

Strategies that complement each other might be much more useful for your portfolio of trading strategies than the one with the best equity curve.

We have covered all these aspects in our Money, Risk, and Strategy Management Guide:

Step 3: Know yourself

It often sounds a like a cliche, but it’s true that if you don’t know your strengths and weaknesses, you are highly likely at a disadvantage.

  • Are you willing to pull the trigger after 6 losses in a row?
  • Do you continue trading after a 20% drawdown?
  • Are you willing to trust your numbers and just push the buttons?
  • Do you accept that trading is all about making bets on an uncertain future (and the future is highly volatile)?

Very few have any idea about this when they start but normally you find out the hard way, which is good as long as you learn and adapt from it.

The best strategies can be found in our….

Strategy Shop

Backtested trading strategies

As a trader, you are not a forecaster. You are not supposed to predict, but just let your automated systems guide you on what to do.

Also, knowing yourself includes limitations on capital and skills, in addition to the above-mentioned risk tolerance.

Step 4: Be meticulous – keep records (manually)

There is an expression that says the devil is in the details. And in short-term trading, which is mainly a zero-sum market (is the stock market a zero-sum game?), only small changes can ultimately guide you to your desired destination. A ship sailing just one degree off when crossing the Pacific will end up hopelessly off its destination.

The same goes for trading: If you can improve just a tad every week, it’s worthwhile.

For example: we are punching our trade log manually every day into a spreadsheet. Why do we spend “unnecessary” time on this when you can export or cut and paste?

We do it manually because it helps us spot details we otherwise wouldn’t see. Mind you, when we were day trading stocks a few years ago, it meant punching hundreds of trades (daily).

Keep a trading journal

Always keep a trading journal. It doesn’t have to be complicated, but make sure you have your trades easily accessible for analysis. We have made a trading journal example available for your convenience.

Feedback loop

Annie Duke has written a fantastic book called Thinking In Bets that all traders should read. Trading is all about betting! You need to make a sound framework.

Step 5: Interact with other traders – get ideas

Two traders (normally) think better than one. For example, this website is a cooperation between two traders that accidentally met at a trading shop in Arizona 20 years ago. One of the main reasons that we are still trading is that we have been blessed with ideas and knowledge from other traders. If not, we are confident both of us would have been working for a paycheck by now.

We have compiled some of our experiences in a separate article called stock market lessons.

You are unlikely to make it on your own unless you are a maverick. And most are not mavericks, but rather the contrary.

Be active on discussion forums. Be helpful to others, and you most likely get some help in return.

Instantly improve your trading with these 5 steps – summary

If you are struggling and looking for ways to improve, we are confident that these 5 steps can help you improve your trading if you give it time. Trading is about feedback loops and learning, so make sure you have a proper framework for this!

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