Most of you already know I turned 70 years old 10 days ago and took a wonderful road trip to Utah and Wyoming. Lots of eye candy in the mountain scenery and the wide open spaces.
I had many hours in the car to reflect on life so far. Some of the important lessons in life and trading that I’ve learned in achieving this milestone in my life in no particular order are:
Managing risk is far more important to survival than is performance, which most traders focus on.
The mental side of trading can override or screw up a well thought-out plan. Get that right or suffer the consequences.
Many traders decide on a position size for the next trade, then set their stops at a point where they feel comfortable with the loss. THIS IS BACKWARDS! I set the stop point at a point where the indicators used for that strategy show me a direction shift against me. Then, based on that amount of risk per unit, I size my position.
Many traders seem to love to predict what the markets will do next. This seems pointless to me. Just measure the trend and when it shifts jump on and enjoy the ride.
Many traders seem to use data on the economy, interest rate curves, volume or things to decide where prices in their markets will go. I just look at price and let all that other data be what it is. It may or may not influence prices, but if I just concentrate on prices, I’m tying my actions to the one thing that either makes a profit or loss in my portfolio. There’s less likelihood of being out of step with whatever the market is currently doing.
Position sizing is more important than where you will buy or sell. Most traders focus on the later and do little with the former.
Return to risk is what I concentrate on when designing a strategy, because the higher that ratio is, the more I can enjoy the ride.
Many traders view themselves as a “trader”. I view myself as a retired guy, husband and grandfather that knows a little about the subject of trading and spends an hour or so managing our portfolios. The rest of the day, I’m doing other things. Don’t make trading who you are.
If you have the choice between completing repetitive tasks (like trading) or creating something new like art, music or a new trading strategy, you will want to do the creating and delegate the repetitive task to automation. You will have a lot more fun in life.
Balance out your life. Take some vacations and time to get away from trading. You might just find inspiration during those periods of reflection that can improve your trading
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Staying healthy helps in everything you do, including trading. If you have energy through being fit, it helps make everything seem easier.
Sleep is far more important than most believe. Your body clears out a lot of dead cells and builds new brain cells while you are sleeping. Don’t cheat yourself of a good night’s sleep. Make it a priority and schedule it.
Make life interesting by getting interested in lots of things. I like to workout, golf, cook, make wine, trade, write, prune my own landscaping and work on projects around the house. I can’t understand people who say they are bored. I never have the time to do all the things that I would like to do.
Know your limitations and deal with them. I understand that I’m not 25 years old anymore and my body will not allow me to do everything I could when I was younger. However, within the limitations I have, there’s so much I can do.
Having contingency plans reduces your stress levels. If you are trying to trade and you don’t have plans in place for things like your electricity or internet going down, you getting sick or what you will do while on vacation, you are going to be stressed. I just got back from 23 days out of 25 days away from my office and continued to operate my trading from the road, because I designed everything to allow me the ability to do that. Design what you are doing for your situation, including contingencies and your life will be easier.
Realize that your time is short and make every day count.
Probably Jackson Hole and Jenny Lake. Fly fishing on the Green River out of Pinedale was great as well. We lost track of how many we pulled in. An enjoyable ride indeed!
Outstanding observations. I am 67, retired ,but spend way too much time in front of the screen. I realized that I should devote a fair amount of capital to more passive types of investments -to cover expenses. Then, use the rest for trend trading with less risk profile than I ve had. Your insights are thought provoking and very helpful. Thank you