Every person who wishes to improve bottom-line results must decide what area needs the most attention right now. As a trader, you must start by taking an honest self-assessment of strengths and weaknesses, prioritize the highest impact areas and then focus on changing one behavior at a time. Most ambitious traders (myself included) have at one time tried to tackle too many issues at once, only to not produce the desired change in any of those areas.
Change takes time. Just as a golfer hitting a drive or a basketball player shooting free throws has developed a certain "muscle memory" for success by repeated practice, so too is your mind a muscle that you have created a muscle memory for in trading (and in all areas of your life). The hardest part of the process is changing that memory from one that hasn?t worked to one that will produce consistent results. But once your mind starts to recognize and get comfortable with these new procedures, maintenance of the change will be much easier.
You must commit to one objective and focus on it. Give yourself a month to work on a given issue, focusing on it each day in your trading journal. Set up potential solutions and then try them out to see if they fit your personality. Create a method to measure your progress. Do you have trouble taking a loss at your pre-defined stop objective? Trade very small for a month, and just work on following your system and taking each loss. The financial impact will be small for a month, but the discipline you instill will last you for years if done properly. You can take this approach with any issue you face. Just remember to stay focused on one at a time until you are confident you have mastered it.
One area I encourage traders to improve is acquiring a written plan for their trading. Yet one of the most difficult things to do is to adjust our gameplan that we have practiced so hard to attain. Yet there is a time to be offensive and a time to be defensive. Trading success in 1999 came by being offensive, while the two years thereafter in 2000 through 2002 were won by defensive investing. Then 2003 required a switch to a more bold approach again. And 2004-2005 has an upside bias but with a lot of choppiness, so you had to know how to pick your spots. Thus far in 2006 we've seen a burst up followed by a pop back down and then last week's grind back up near all-time highs in the Dow. Sometimes just surviving through the tough periods in the markets separates the eventual winners from the losers.
How can one expect that one game plan will be successful in every market, when the markets are constantly changing? The smart trader will never trade with just one game plan. He will always be able to switch from Offense to Defense. My benchmark for changing game plans is to monitor the market?s mood in my sentiment data. This tells me if people are getting too extreme in their emotional views towards one side of the market. That's often when I will become more concerned about the current trend ending and start to scale out of that trend, gradually increasing my bet that a major turning point will soon occur.
So find an area to work on and go tackle it! You can always start with what you consider an easy area that you know you can improve, and then you can work your way up to bigger challenges as your confidence grows. How you experience trading is very much determined by your level of enjoyment of all aspects of trading, versus viewing trading only as a means to make a lot of money. While money is important, the best traders truly love the game.
Price Headley is the founder and chief analyst of BigTrends.com.