If you were to take the entire trading experience and break it down into general sub-categories, one could argue that successful trading is composed of the following components:
Strategy Development – backtesting, researching, etc (both trading strategy and risk management strategy)
Personal Development – Working on one’s own psychology and the mental obstacles standing in the way of trading success
Real-Time Market Analysis – Conducting technical and fundamental analysis in order to find trade setups
Trading – buying and selling a financial security and actively managing open positions
Trade Review – Analyzing one’s trading performance by looking over the day’s or week’s trades and looking for clues on how to increase trading performance
Although each of these categories is general in its scope, these are basically the 5 major areas of the trading experience. Now, the question is how much time should a person devote to each of these categories? First of all, let us lay a framework by saying that mastery in each of these areas takes years. Thus, it should be clear why earning a living in the market is so difficult. It requires a massive amount of time and energy; however, it can be done, and there are people who do it every year. As a new or developing trader, the amount of time that a person devotes to each of these areas of the trading experience will ebb and flow according to the current development of the trader.
In the beginning, most traders gravitate toward 2 things – developing a strategy and trading. Trading, after all, is why most people get involved in the game in the first place. Trading is definitely the most exciting category of those listed in this article. Winning is exhilarating and losing can be devastating. Trading, however, is never boring. And that is exactly what that other categories can tend to be. Thus, most new and developing traders have a very difficult time devoting much time to Personal Development, Trade Review, and Risk Management Development.
The ironic point, however, is that one could strongly argue that the most important elements of trading success are Personal Development, Trade Review, and Risk Management – the very things that most traders are hesitant to engage in on a consistent basis. If a trader commits to consistently engaging in the practice of these 3 areas of the trading experience, his probability of success will be much higher than someone who refuses or simply neglects these 3 areas of the trading experience.
Many traders spend the majority of their day simply trading – entering, managing, and exiting trades. However, in reality, this should be only a small percentage of the time that is spent at work each day.
The Power of Trade Review
For most people, it is difficult to remain in the habit of keeping a Trade Journal. However, today it is easier because there are countless software programs on the internet that can be purchased for a few bucks that help traders keep a Trade Journal electronically. The benefits of a Trade Journal are huge. As a stay-at-home trader, you face significant challenges that corporate traders do not face. A corporate trader has a senior trader that he is accountable to, and there is usually a manager of the entire team. Therefore, he has two heads over his shoulder, watching him and giving him critical feedback each day.
As a private trader, you do not have this luxury. Brokerage firms are not going to be your coach. You have to choose to be your own trading coach, and the only way you can do that effectively is if you develop a method of journaling your trades and then reviewing them at a specific time each day or each week. Oftentimes, the weekend is a great time to look back over the week and review your activity. It allows a trader to be more disconnected from any emotion of the week, and it enable one to have a more objective perspective.
In conclusion, trading is much more than just trading. Aspects of trading including Personal Development, Risk Management, and Trade Review are areas of trading the demand as much attention as the actual act of trading.