What other bloggers are saying: Becoming a better trader

Here's a comment from Charles Kirk of the Kirk Report.  It's targeted to short-term traders, but the first sentence is appropriate for every trader.  The difficult part is helping new traders understand just how true it is.  So many of them blow their entire trading accounts, and leave the business forever, never recognizing that it was poor risk management that destroyed them.

"Finally, as I've often talked about before, it is my opinion that
what you trade is not as important as how you you manage the trades you
make.

Many people can build high-quality watch-lists but if you
don't know how to spot optimal entry points, how to scale into and out
of positions, have a complete understanding of how to limit loser trades
through position sizing and stop losses, etc. your success will be
modest at best.

Remember, it isn't what you trade that will make you
successful, but rather how you manage the trades you make no matter what
they may be"

***

This useful advice from Dr. Brett won't be of much help to most of us who trade from home or during lunch breaks at work.  But it's important for anyone who is considering becoming a full time trader. 

There are steps you can take to improve your performance, but it takes a great effort.  Find serious traders in your town.  Have get-togethers to discuss business.  That means shop-talk and minimal social chit-chat.  Share ideas.  I don't truly understand the deep psychological aspects of how it works, but just being with successful people and sharing ideas and being a contributor to the conversation brings results.  Perhaps it's confidence building.  Maybe having someone else express support for your trading style is enough to make a difference.  I don't know why it works, but it works.

The difficult part is finding other traders and convincing each other that you deserve to be in such a group.  And for the vast majority who are not professionals, talented beginners can offer each other guidance as you learn together.  Remember, this is a business group.  It's great if you become friends, but the primary function is to help each other become more successful.

Time and again, I've found that
long-term success in markets is not just a function of who the trader is
and the strategies they trade, but also their trading environment.
Being around successful traders can help you become a successful trader;
having the right tools can help you do the job well. As Steve [Spencer] mentions
in his post, the right technology is crucial; proper resources to
assess and monitor risk can make all the difference in one's eventual
distribution of returns.

But it's like growing up in a
dysfunctional home or without a home at all: It's difficult to generate
the right kind of environment for yourself when you've never
experienced one. This is a particular challenge for independent
traders. If you've never been part of a high performance environment,
it is difficult to weave one from whole cloth.

Environment matters. Few people will
challenge themselves to stay outside their comfort zones. An
environment that stimulates you, challenges you, and backs you up can be
every bit as important as the markets and setups you trade.

Note the challenge to trade outside your comfort zone.  I preach exactly the opposite.  The difference is that the expert trader learns to expand his/her comfort zone.  Trying to do that before you are a competent trader, let alone an excellent trader is far too soon.  To become an expert, I agree with Dr. Brett's advice.  But please – this is for the expert trader, not for the beginner and not for any trader who lacks excellent discipline.

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2 Responses to What other bloggers are saying: Becoming a better trader

  1. Simon 04/22/2010 at 6:57 PM #

    Hi Mark,
    Some very wise words above. I have been using different kite spreads you have mentioned on your blog to protect my iron condor positions. This has produced mixed results and I would like to share some of my thoughts and also get your feedback.
    When the market has moved closer to one of my short strikes I have decided to add a kite spread to my iron condor position, if the market continues in that direction it usually serves me well, if it doesn’t then it’s part of owing protection.
    When I add kites to both sides this really eats up my premium when the market is doing nothing, but again thats the cost of insurance. I have also tried placing kite spreads when I open my iron condors which provides comfort but little reward and if I don’t put on any kite spreads I feel vulnerable during that time.
    My question is when do you put on your kite spreads after opening an iron condor position?

  2. Mark Wolfinger 04/23/2010 at 12:33 PM #

    Simon,
    Difficult question to answer. As I trade kite spreads more frequently, I learn more about them.
    1) Obviously buying a naked long option provides better protection – but the cost can be prohibitive.
    To cut costs, I prefer trading the kite spread. The alternative is to buy an option with a ‘less good’ strike price.
    Warning: the later it is in the expiration cycle, the less desirable it is to add a kite. There are better alternatives because kites get very risky as expiration approaches. I’ll post on that topic soon.
    I prefer to be out of the original IC and the kite well before the final week. If you are someone who holds to the bittern end, kites are good for awhile, then the risk/reward can get bad. I want to discuss that in that future post.
    2) When you do trade the kite – before trouble arrives – then you get a very good price for an option with a very useful strike price. That’s the good news.
    But, if you buy both puts and calls, then the total cost is too high.
    For that reason, I am not buying protection until I need it. At some point the market will get more volatile again (tomorrow, next year, next decade?), and kites will be more profitable.
    3) When is protection needed? That’s a personal risk management decision. But I offer this advice:
    a) You will probably hold the adjusted position for as long as you hold the original iron condor). If that is true, then do not buy a kite unless the long leg is closer to the money than your CURRENT short leg.
    b)Don’t buy a kite when (approximately) less than 2 weeks remain before expiration. At that point in time, the cost of a naked long may be reasonable to buy on its own.