Trading Lessons I Learned the Hard Way, Part 16

08/22/2012 8:00 am EST

Focus: STRATEGIES

Ron Wagner

Principal Partner, RevolutionaryTrading.com

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.

Find the previous article here. Start at the beginning here.

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!

Lessons learned:

  1. Track everything you do!
  2. Keep journals of your trades and break them down into categories!
  3. Determine a major category that you would like to work on improving or eliminating if something is not working for you!
  4. Don’t try to do too much all at once!
  5. 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!
  6. Take baby steps! Soon enough, you will be running along smoothly to accomplish your goals!

Ron Wagner can be found at Revolutionary Trading.

Related Articles on STRATEGIES