Staying Focused as a Trader

02/19/2010 12:01 am EST

Focus: STRATEGIES

For those of you who trade as part of a desk, I’m sure you have heard expressions like this a thousand times:

“I can’t believe I missed that move in XYX. I was waiting for that breakout for a week!”
“I got stopped out in ABC, and then it took off!”
“I missed getting hit on the bid by a penny, then BS ran two points!”

I am used to hearing the above on a daily basis. Traders—to their detriment—spend a lot of time harping on the money that they “should have” made. The question is what were they doing to make sure that they didn’t miss the trade, or if they got in and were stopped out, did they have a plan to get back in?

During our traders’ initial training period, I give a lecture on focus. I talk about what it means to be focused as a professional trader. Professional traders who are focused do not miss entries on stocks they have been following. They set an alert, and when the alert is triggered, they execute their trading strategy. They don’t come up with some excuse about how they were in another position at the time, or they were eating their lunch, or watching a video on YouTube. They just execute.

Here are a few tips on how you can better execute on the opportunities presented each day:

  1. Spend time each day visualizing how you traded a particular play. See yourself executing your trade as it occurred, but also integrate into your visualization some small adjustments you would make to improve your results. These adjustments should be based on observations you made at the time of the trade with respect to the price action of the stock. This exercise will give you more confidence the next time a similar setup occurs and you can pull the trigger and trade it with greater efficiency.


  2. Spend time developing detailed trading plans for the stocks you intend to trade on a particular day. Then, visualize executing the trades when the stock hits your price points. Visualize what the tape should look like in order to confirm your thesis. Also, visualize yourself getting out of your position if it goes to a predetermined stop point or shows you something on the tape that warrants your exiting the position. See yourself taking profits and immediately determining where would be a good point to re-enter the position.


  3. Get some rest. Without proper rest, you will miss a huge percentage of your best setups.


  4. Spend time each day reviewing charts of the top market stocks and top in-play stocks for the day. This will give you a sense of the most recent and important support/resistance levels, and will enhance your ability to execute when those stocks hit their important prices.


  5. Be on the desk throughout the day. I am a firm believer in taking a break at midday and re-energizing for the close, but you also need to be aware that the best moves of the day sometimes occur between 11 and 12 o’clock. Just check out the charts in FCX and AAPL from yesterday (February 18)!

We all know there are literally hundreds of little things that need to be done to become a consistently profitable trader. Please include these on your list of daily activities.

In the coming days and weeks, you will see us devoting quite a bit of time to the idea of “skill development” for traders. It is our contention that most trader training emphasizes knowledge over skill. Dr. Brett Steenbarger recently touched upon this topic on his blog. The vast majority of underperformance of traders is a direct result of the lack of time spent building trading skills.

By Steven Spencer, trader, SMBCapital.com

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