As traders and investors, we need to have a consistent goal to increase our returns, adjusted for risk, over time. Following are seven of my best ideas, that I have implemented daily, over my 22 years in markets, that you can begin to implement today.
1. CHANGE HOW YOU THINK ABOUT MARKETS.
It has been my personal experience that those who outperform and consistently get positive results, realize that the message of the markets is much more important than what they think. It is human nature to think that we can predict or interpret news better than the next person, but the fact is, to trade or invest profitably, prediction is not required. Once we accept that the market price on the screen at that time is right, and stop trying to impose our will on markets, it is easier to react and adjust accordingly. It is OK to have some type of a general market overview, as long as we understand that if the market goes drastically against it, then we are wrong, not the market, and we adjust.
2. TIME FRAME.
It is important to align your time frame with your thinking and your information base. If you are an intermediate to longer-term trader or investor, like myself, than the overnight futures market really doesn’t matter, the latest CNBC headline, and about 90% of the news throughout the day, likely won’t have an impact on your positioning.
Industry statistics for decades have shown than longer time frames net better results and that shorter time frames yield worse results. Most day-traders go broke and there are no discretionary day traders on any Forbes list. Instead of trying to beat the markets, it is smarter to let the markets work for us, and then strive to outperform if we can.
Find what time frame suits your personality and then focus on that. If you are intermediate to longer term, then it doesn’t matter what the futures are doing or what someone on TV thinks about your stocks.
3. IGNORE OUTSIDE OPINIONS.
Industry statistics show that many traders lose money over time by making emotional shorter term decisions. During the trading day, I keep the volume off on the TV. I will often have the Financial news on, Bloomberg or CNBC, to watch the tape, but other than that I keep the volume off. Many times I will have the TV off and just have music on or nothing, based on my mood. Ignoring outside opinions on social media is a good idea as well, and many of my biggest wins have come when the consensus online is leaning in the other direction.
4. FOCUS ON PRICE – NOT INDICATORS.
Your account balance and P & L are based on price, that’s it. There are no columns on the P & L sheet for volume, RSI, or any other indicators, just price x volume. I focus on price, price trend, and moving averages, which are a computation of actual closing prices. I know that if price is making higher highs and higher lows for my time frame, then it is trending higher. Lower highs and lower lows, means it is trending lower. If price breaks above or below a key level, then that can send a signal as well.
What I don’t want to do is look at an indicator that says that the price is wrong and the indicator is right. Someone can always point to that ‘one time’ an indicator ‘called it’, but it is much more likely coincidence than a winning long term strategy.
5. DO LESS OF EVERYTHING.
Most traders and investors do too much and look at too much. My results drastically improved when I reduced everything:
Fewer positions – focus on best ideas.
Smaller positions – to get right sized and not try to get rich on one trade. Also prevents form being shaken out when volatility comes up, as it can at any time.
Less charts to look at.
Less indicators and noise on charts.
Less watch lists.
Smaller watch list with fewer names.
Create a selection universe. I focus on large cap stocks, over $10B market cap, which is currently 633 names in the Finviz database vs a possible 7800 symbols.
For ETFs, I focus on the S&P SPDRs and some higher volume core ETFs, $SPY, $QQQ, $XLE, $XLE, $SMH and the like. I don’t use levered ETFs.
Watch less news.
Look at less information.
Stop over-analyzing every position.
6. MANAGE RISK BY PRE-PLANNING POSITIONS.
If you have a process that says you enter a position and you use a 12% stop loss, than you take the signal, set your stop in the system, with a GTC order at -12% and let the position go to work.
Example: If you buy a stock at $100, you put your stop at $88 and you leave the position alone. Some work, some don’t, but the stop is in place to help manage risk and also reduce emotional override. Learning how to automate the process and reduce daily over-analysis will greatly increase performance and mental state.
This video below will walk you thorough how to pre plan trades using GTC orders: https://bluechipdaily.com/how-to-pre-plan-trades-with-gtc-orders-to-improve-results/
7. STUDY THOSE WHOSE WITH MORE EXPERIENCE AND BETTER RESULTS.
I constantly study the best traders and investors of our time. I found that by studying all of the Market Wizards books that I could get insight into how the legends thought and managed their money. Paul Tudor Jones, Stan Druckenmiller, George Soros, Bruce Kovner, and the like. Self made billionaires. Once I learned how they thought about markets and risk management, it helped to shape my thinking.
I also made personal contacts in trading that were seasoned professionals, and learned from them to develop my own process.