Wow. Not much change since Monday. Kind of nice. I'm still hovering around 48%. Only 4 positions open, although 2 are highly correlated, and another is a double position.
As promised, here is another installment in "The Trading Process"
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The Trading Process - Rate of Return
As part of your Trading Plan, you really need to know where you want to go. By this I mean "what rate of return on your trading capital do you want?"
It is not enough to say "I want to get rich trading." You really have to quantify it, for 2 good reasons.
First, you want to make it real. In goal setting, a statement like "I want to earn 50% per year" is much better than "I wanna be rich."
Second, with a written number, you'll have a target to measure your strategies against. Do the strategies meet your goals, or not?
So, Step 2 is "Determine Your Desired Rate of Return."
EXAMPLE: I did exactly this as part of developing a system for this trading contest. In my case, I wanted a rate of return that could win the contest.
So, first I went back and looked at previous winners (http://www.worldcupadvisor.com/worldcupchampionships/default_nwcc2.aspx, click on "See Full List" under Previous Winners section). Based on previous winners, I estimated that 100-150% annual return would probably put me in the top 3, and possibly in the top spot overall. That became my goal.
Consequently, for this contest, I decided to build a trading strategy that had a reasonably good chance of returning 100-150% in a year's time. If I found a strategy that returned 50%, I set it aside, since it did not meet my goal.
Of course, the flipside to the rate of return is also important. I'll talk about that next time.
Nice! I am back here reading your blog every day.
ReplyDeleteGreat! Hopefully I'll provide worthwhile information. I recommend signing up for the e-mail notification, since I do not post every day.
ReplyDeleteSome more practical tips!
ReplyDeleteAs you do know lots of full-time traders, how do they keep themselves healthy and alert?
Do they like exercise every day or play chess etc.? Do they have a hobby outside of trading that they do regularly or everyday? Do they solve sudoku? What is the most common non-trading activity that they engage in?
I hate to say it, but I've never talked at length about any non-trading activities with any other trader.
ReplyDeleteMaybe some other traders can answer the question?
As for me, I've recently started doing regular brain exercises, and also lumosity.com. Don't know if it helps yet. Meditation would probably be good, too, but I've never been able to keep a regular practice of it.
I asked about non-trading activities that full-time traders engaged in because I found that the trader himself is a big part of the trading equation. Two traders using the same trading method can have vastly different trading results due to health and mental focus.
ReplyDeleteI agree, especially for discretionary trading, where being sharp every single day is critical.
ReplyDeleteExcellent comment! I hope some other traders chime in with what they do.