A couple of days ago I wrote about the application of the main principles in Traders Pendulum to my own trading activities. This is Part II and deals with the next three chapters. Part III will look at the final chapters:
Habit 5 – Pursuing the trading style suited to one’s personality and lifestyle
Ideally one should experience scalping/momentum trading, daytrading, swing trading and position trading to figure out which one suits the trader best. A coach can help in finding the right match. Once the time horizon has been selected, one also has the choice between the discretionary, system-based and automated reading. I previously blogged about my thoughts of retail traders using fully automated trading strategies – see here for details.
Not being matched to the right style of trading increases the chance of failure or simple dropping out of the trading project/business.
Based on my trading over the last 2-3 years, I believe that I have found the trading style that most matches me at this point in time. That comprises daytrading on a part-discretionary/part-systematic basis. However, this optimal match might change in the future.
Largely what drives it for most people is their availability of time – does one trade in addition to holding down a full-time job, running their own business, are they juggling with running a household and/or bringing up a family, or is one trading full-time, or doing it as something to keep active during retirement.
Habit 6 – Trading Strategy
Importance of having a documented and structured approach for how the trader will trade. And secondly, that the approach has been thoroughly tested before trading live with it.
Applying this to my own situation – the trouble here is that I have not tested the K5 trading strategy – which is the approach I have used for most of the last 1-2 years. In fact, I have not tested any of my trading strategies for that matter. Thus, this is an area with a lot of improvement potential. I should engage in a proper testing exercise before resuming live trading with this strategy. In a nutshell, this is most likely the big elephant sitting in the living room!
I have blogged about my views of testing some months ago – though I had not followed through with it. Click here to check that (very long) blog post.
Habit 7 – Trade Planning & Trade Management
Discusses money management and trade management. The trade management comprises setting of targets, stops and adjustment of stop loss. All of this should be part of the trading strategy.
Applying this to my situation – I believe that I have the money management aspect under control. However, my trade management rules are possibly too complex, sometimes not documented in advance [at the time of entry] and sometimes not followed. Thus on the whole this area is in need of improvement for me. This should of course be included in the trading strategy testing phase.
Keep watching this space for Part III in the next few days