How I Plan to Be a Better Trader in 2022

The year 2021 was very challenging for most traders and investors. As I've discussed extensively, what was most unusual about the market this year was the disconnect between the indexes and the performance of the average stocks. Small-caps, growth stocks, and many speculative sectors like biotechnology and cannabis were in bear markets for months while the indexes made it look like there was a roaring bull market.

My style of aggressively trading smaller stocks with higher levels of volatility did not work as well as it usually does. The biggest problem was that stock picking didn't matter much. I consider myself a 'stock picker,' but picking quality stocks didn't matter in 2021 unless they were a small group of mega-caps. I seldom trade mega-cap names because they don't have the level of volatility that I prefer. Many small-caps can move 10% in a day, while very few large-caps ever see a move of that size.

Like many others this year, I had a great run in the first quarter and built a good cushion of gains but then gave back too much in the second half of the year as more aggressive defensive became the focus. The types of stocks that I favor could find no traction.

So what should I focus on in 2022 to be a better trader?

Good traders should never be satisfied and must always look for ways to improve. There are three essential components to trading - stock selection, methodology, and discipline - and I will be looking to improve in all three areas.

Stock Selection

I find stock selection the most enjoyable aspect of the investing process. The hunt for new ideas and undiscovered gems can be very satisfying. My main focus in 2022 will be to expand my selection process and be more willing to embrace some stodgy big-caps that may not move much but offer ways to put more capital to work.

I also plan to work on increasing my screening capabilities and developing better and more focused watch lists.

Too often I will find an interesting idea and then lose track of it during the day as other things distract me.

Methodology

Two essential aspects of my trading and investment methodology are using an incremental approach with many partial buys and sells, and focusing on keeping accounts close to highs as possible. Market conditions significantly impact how this is implemented, and it is vital to react as market conditions change.

My methodology is generally excellent, but I need to push myself to be more aggressive. I need to buy bigger and press harder when conditions are in my favor, but be a much more aggressive seller when conditions turn down.

The only way to increase returns is to have a greater tolerance for volatility. I have to work harder to find a balance between downside volatility and admitting when a trade has failed. The best way to do that will be more aggressiveness with my increment approach.

Discipline

If we don't have discipline, our plans are meaningless. Most traders have a pretty good idea of what they should do, but they don't do it, which is the root cause of most of their problems. One of the main reasons we lack discipline is that we aren't very clear about our plans. If we just have some vague idea about how to handle trades, then inertial will most likely set in, and we want to do anything.

The main thing I have to do more regularly is force myself to act. If a stock is not doing what I want, then I need to decide to either cut it or add to it. Inaction should not be the default position.

Discipline is the most challenging aspect of superior trading, but it also is what determines our results more than anything else. It has to be cultivated daily.

One of the things that can aid in good discipline is positive thinking. If we believe in our methodology and our ability as traders, then we should be empowered when we are disciplined and do what is right. We should be confident that our methods and discipline will eventually pay off regardless of the short-term results. 

These are just some of the things I plan on working on in 2022. I hope you will join me in having the best year ever.

At the time of publication, James "Rev Shark" DePorre had no position in the securities mentioned.