A few weeks back, I kicked off the Intelligent Investor Series as part of my weekly commentaries. Th...
Trading Lessons I Learned the Hard Way, Part 16
08/22/2012 8:00 am EST
Ron Wagner of Revolutionary Trading discusses the lessons he learned from his early days of trading, and how his trading has evolved to become profitable.
Last time, I promised I would talk about a couple of adjustments I made from what I learned by tracking my trades. But before I do that, I must interject that I expanded my tracking to include information on my Excel spreadsheets. I started to include each win and loss amount, and then could calculate my win/loss record as well as my average win and average loss.
What I found was that it was important to not include any large losses (which shouldn’t happen, but did while I was becoming accomplished) or any large wins. They would skew the information and give me misleading information, especially the large gains. I wanted to be a consistent trader and not rely on the big gain.
I learned that most traders who have big wins often give all their profit back to the market in pursuit of the next big gain. I didn’t want to be one of those traders. I have nothing against large gains, but I wanted to be consistent in my trading and not rely on large wins.
I tracked my trades by the time of the trade. In other words, I categorized my wins and losses for each time period I traded. This way I could see if my winning percentage was different on different days and/or times of days. I also tracked those trades that I didn’t get filled, or I hesitated to take.
Now, let me tell you a couple of the many adjustments I made from my personal statistical analysis. The first adjustment I made was, in fact, from the collection of trades that did not get filled.
At this particular time, I was trading a lot of breakouts and breakdown trades. (I still do focus on these.) I found out that I was too tight on my entry requirements—in some markets you can’t get into a breakout unless you are either anticipating the breakout (which requires a great understanding of the market environment and your trade), or make sure to appropriately allow a little slippage.
I made adjustments by studying market environments a great deal. I also adjusted my entry by appropriately allowing two or three more cents to get into my trades when warranted. That is a much longer subject for another time. Making just these two adjustments meant a great deal more success in my trading, and to this day I rarely am not filled on my trades. This is a skill that requires a great deal of attention, but well worth it.
Many traders can successfully get as many shares as they want on the trades that don’t work very well and have a hard time getting filled on those that move quickly. That’s why it’s paramount to have a clear understanding of your goals, the market environment, and the type of trade we are dealing with.
The next adjustment I made was so incredible to me that I love explaining this example. About ten or 11 years ago, I had a hard time sleeping one night, and was thinking that maybe I was selling too early on my profitable trades. I went back and checked about 100 of my most recent trades, and I was jubilant in what I found out.
I found that if I had held each of my micro trades for at least one more minute, I would become more profitable. Hard to believe: just one more minute! I bought a stopwatch! What I found was that because I had become an excellent stock picker and good at market timing, even when I saw an impending market reversal, my selections either had RS or RW (relative strength or weakness), and would move further than the market before they reversed.
I would have never found this out if I had not been printing and tracking my trades. That one adjustment has made me a great deal more money. I became so good at reading the market environment that I was jumping out of my trades a little too soon, and I needed to adjust my trade management to accomplish better results.
These were only two of the many adjustments I recognized that needed to be made! Can you imagine how much a series of adjustments might mean to our trading results? I found out and started taking “baby steps” toward accomplishing my goals and improving my results!
- Track everything you do!
- Keep journals of your trades and break them down into categories!
- Determine a major category that you would like to work on improving or eliminating if something is not working for you!
- Don’t try to do too much all at once!
- Work with a coach or mentor who can look over your statistics and help guide you along your journey! You will never regret doing that!
- Take baby steps! Soon enough, you will be running along smoothly to accomplish your goals!
Ron Wagner can be found at Revolutionary Trading.
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