Brief thoughts on better trading

Trader's Mindset

Mar 26

I made a list of my current best insights to improve my trading:

  1. Practice discipline in risk management. Know your maximum acceptable risk per trade, per day, per week. Take advantage of external risk control, as well.
  2. A broader scope allows capturing more opportunity. However, it is critical to be even more risk astute and extra careful when trading new types of products and markets.
  3. Something I’ve always felt as important for better discretionary trading is ability to know when you are more likely to be right. The cultivation of the ability to recognize high confidence vs low confidence ideas is most critical. As such, find methods to rank and enhance your best ideas through systems, practice, process, self-introspection, and study.
  4. Every trade has a basis or thesis. Trades may have an empirical basis or speculative or opportunistic basis. The structure of the claim is what is important. If I trade more frequently then it is important my “statistical basis” to be stronger. On the other hand, if I trade higher confidence ideas less frequently that have high pay off then relevance of statistical profitability is less but structure of trade is still important. Most traders have some trade ideas they do really well on, some that are break even, and some that more often lose. They key is to enhance our best trades and eliminate the consistent losers.
  5. Do not commit too much risk to any single trade idea. A problem of mine in the past has been that I risk too much on a single trade idea. I think what is relevant here is for me to understand the claims made and to spread out the risk across different time frames, ideas, and instruments. It is possible not just to diversify trading ideas but how we pursue those trading ideas. For example, if I have a high confidence the market will rally then I can allocate some percentage of risk toward different ways of capturing that profit. I might allocate a portion of that risk toward shorter term day trades while another portion might be allocated toward capturing the profit across multiple days, such as with options on futures.
  6. Be willing to trade both sides of the market. This can be seen as another form of diversification.
  7. Practice “dual mind” to reduce poor trading. One part of the mind is reading the market and fully engaged. The other part is detached and risk astute. One part strategic. One part tactical. A checklist, graybox, or partial systematization or automation could help, as well.
  8. Risk relatively less when markets are volatile. It is easier to generate profit in volatile markets but the cost of mistakes is much greater. The risk of very large losses, due to mistakes, carelessness, or poor discipline is much greater. Because there are more opportunities, there is no reason to risk too much on any single trade idea. The key is to keep risk down on any single trade to be able to take full advantage of the greater opportunity.
  9. Learn what is possible but try not to overly extrapolate too much from a good or bad results. While a strong memory is a blessing, be aware of how it is possible to develop false beliefs, self limiting beliefs that are merely an artifact of memory.

About the Author

The author is passionate about markets. He has developed top ranked futures strategies. His core focus is (1) applying machine learning and developing systematic strategies, and (2) solving the toughest problems of discretionary trading by applying quantitative tools, machine learning, and performance discipline. You can contact the author at