If you will pardon me getting personal, I was recently at the doctor who was discussing some simple things I could do to become “more” healthy. Just because some of these suggestions might be “simple,” doesn’t necessarily mean they are “easy” to accomplish. Sometimes the simplest things are the most difficult to implement because we are creatures of habit. Sometimes we really need to force ourselves to do the simplest, most logical things. To me the best way to make a change that may not be a habit is to write it down and determine that we are going to do whatever it is, for at least a 30 day period. One suggestion is to write it down on a 3×5 card and put it in a prominent place, in plain view, but a different place each day, so that it is “stays” noticeable every day until it becomes a habit. One of the simple suggestions that the doctor gave me was to reduce my intake of sodium. To be successful at reducing sodium I first need to understand why reducing sodium is so important to me and what benefits I can expect (EDUCATION). The next thing would be to understand how much sodium I am eating, and then determine things I can do (DEVELOP A ROUTINE) to help reduce my sodium intake. The next thing is the follow through by continuing to update a log to monitor my sodium intake (KEEPING A LOG). Lastly and perhaps the most important thing I can do is to report back to the doctor my routine, progress, to get further ideas and encouragement (REPORT TO A MENTOR).
- Now let me relate this simple example of reducing sodium for better health and lower blood pressure, to our trading. Educate yourself. First, we need to get the best and most accurate information and education concerning our trading, finding a simple easy to implement strategy for entries, exits, and risk management.
- Develop a specific Trading routine. To implement a good trading routine, the best strategy is a simple strategy. The easier to implement the better. Also, very important is that each trader, honestly evaluate his or her own risk tolerance. Then we need to develop risk management rules that will follow our risk tolerance. I suggest until we are comfortable with our own risk tolerance, we limit our risk to no more that 1% of our portfolio per position. We then need to determine a consistent daily trading routine whether it is trading a few minutes per evening, or more active day trading during the market. Once we make these determinations we should implement them consistently for at least 30 days or 1 month.
- Keep a trade journal. To successfully implement a strategy or new trading routine, we need to keep a trading log or journal and make it as specific as possible, by including trades, explanations for entering or exiting all positions, including all winners and losers alike.
- Report to a Mentor or Trading Partner. The last thing would be to find a mentor or another trader who you can share your trade journal with to get ideas and to hold yourself accountable to your routine and trading goals.
If we are not having the success in our trading that we are looking for, here is a simple framework with 4 very important steps that are essential to trading success (or success in other endeavors, as well).