A Trader's Resolutions for the New Year

With 2014 quickly coming to an end it's a good time to reflect on what we can do to improve our trading results in the new year. I'm a big fan of making resolutions for the new year. Too often we are so caught up in the day-to-day minutia that we lose touch with the bigger picture. Thinking about how we can improve our trading forces us to look at the basics we often ignore.

The first resolution that everyone needs to make is to work hard to implement our resolutions. You have to be realistic about them. It is very easy to come up with a list of things you should change, but if you don't put forth the effort to actually make changes, it's a waste of time. Lots of talk with no action isn't going to do anything to improve our lives.

One thing I contemplate every year is how to increase my level of aggressiveness. If I just do what I usually do but with greater aggressiveness, my results would improve. The problem is that increased aggressiveness tends to change trading dynamics. Some of that is simply learning to deal with stronger emotions that are created when you increase risk but there also is the problem of trading small-cap stocks that can make it difficult to enter and exit if you are holding too much.

I can deal with this by trading more liquid stocks but it is much harder to find great opportunities when you buy stocks that are more widely followed. Another approach is to work to increase position size by using an incremental approach. If I make a series of buys and sells that makes it easier to enter and exit positions but my timing may not always be optimal.

Most of the issues that traders need to focus on are stylistic. Most of us have a basic approach that we apply and we can improve on it by either executed it better or by adding some variations and expanding the potential for more good trades.

Nearly everyone can improve how well we execute trades. For most, that boils down to nothing more than learning to juggle between being more decisive and being more patient. Our biggest losses tend to come when we avoid making decisions, but we mess up our best trades when we fail to be patient. This battle really is the core of good trading and we can work to improve it by making sure we have solid plans in place when we enter a trade. What tends to mess us up is that we wing it rather than stick to a plan. Sure, we will need to adapt at times as conditions change but without a plan in place, we are much more likely to act impulsively or to freeze up.

I need to work on being a bit more patient with trades that are working. I typically like to take partial profits into strength but in this market when we have this very streaky action, that puts me in cash too early and too often. I will try to deal with that by using trailing stops more often. That will require a greater tolerance for giving back some gains but that may pay off in a market that has strong momentum.

Another area most traders can work on is finding a better supply of trading ideas. For me the hunt for new ideas is one the most enjoyable aspects of trading. It is very satisfying to dig deep and finally find a nugget of gold to trade. You can always improve on your supply of new ideas. I too often lose track of things that look good and I need to work on managing my list of ideas so that I can act on them more effectively.

I also want to work harder on developing bounce trade ideas. I'm generally a momentum trader, but some of the best trades this year have come from catching a bounce as a V-shaped move develops. That requires buying broken charts but the dynamics of the market have changed and that is now a much more effective strategy than it has been in the past.

For many traders the weakest part of their trading is the short side. Good shorting requires an adjustment to our thinking -- and that can be quite difficult. The best way to overcome it is to force ourselves to take on a short trade on a regular basis. I plan on at least one short trade a week, regardless of market conditions, just to condition myself to think more about the dark side. I suspect that in the year ahead there will be some downside action to deal with.

Trading resolutions are highly personal, but they all start with a good dose of introspection. Change isn't always a good thing, but it is the only way we can grow.