How does someone doing market neutral trading determine which aspects of his trading need improving?"
That's an excellent question, and I'm forced to reply that I don't know the answer. This is a vital aspect of trading, but I have never devoted enough time to completely understand this concept. I'm sure that omission has cost me a substantial sum over the years, and I don't feel qualified to answer.
What I do is help traders understand options, how they work, and how to profitably adopt several option strategies. But it takes a whole lot more than that to become a successful long-term trader.
In my gut, based on more than 30 years as a professional options trader, I feel that if the individual trader can get a firm grasp on the psychological factors that can destroy a trading career, then the trader is in position to prevent the vast majority of disasters from occurring. Preventing those disasters is the key to success.
Being willing to accept the idea that you don't know more than the market; understanding that the market can truly remain irrational longer than you can remain solvent (the words of John Maynard Keynes); recognizing that all positions cannot be transformed into winners if you just hold them long enough. If you believe these ideas to be true – and I mean really believe them – and trade as if you believe them, you are off to a good start and have a chance to remain in business to develop the skills that make money.
I speak as someone who was overconfident for a long time before finally learning the importance of discipline – and I'm telling you, and all readers, that making money when trading is not the difficult part. The really hard part is keeping the profits. To do that, you must have the discipline to accept losses and to accept that you are not infallible as a trader.
The cardinal sin is to allow a loss to grow so large as to overwhelm profits. The other major no-no is having positions that are far too large for your bankroll and experience – because large positions can quickly turn into large losses than can hurt you.
Have patience. Have discipline. Understand what you are doing before you placing more than small amounts of your money at risk. You are not competing with your friends to see who can make the most money. Plan for the long term. Trade as if your financial future depends on your success, because it does.
Do these things and you should prosper.
At least, that's what I believe is true.