Improve Your Trading: Five Key Steps
Become A Better Trader
Improve your trading: five key steps (to becoming a better trader).
Step 1: Backtest your ideas
It should not come as a surprise that the first step we recommend is backtesting. Without testing your strategy, how can you know whether you are on the right track?
In our view, the main reason most traders fail is that they do not have a positive statistical edge. No amount of position sizing or risk management can compensate for a strategy that lacks an edge.
If you haven’t done so already, backtest every strategy you plan to trade. If a strategy is too vague to be translated into clear, testable rules, it is probably best to avoid it -unless you have a detailed trading journal that clearly documents its performance.
Step 2: Trade across many markets
Mechanical and automated trading gives you a powerful advantage; use it to your advantage.
Instead of searching endlessly for the single “perfect” strategy, focus on diversification and low correlation between strategies. Combine strategies that operate across different markets, time frames, and market directions.
This means trading different asset classes and including both long and short strategies. Short strategies can be harder to develop and trade, but even adding one or two can significantly improve your overall portfolio.
Often, a group of strategies that complement each other is far more valuable than a single strategy with the best-looking equity curve.
Step 3: Know yourself
This may sound like a cliché, but understanding your own strengths and weaknesses is crucial.
Ask yourself some honest questions:
Are you willing to keep trading after six consecutive losses?
Can you continue after experiencing a 20% drawdown?
Are you able to trust your system and simply execute the trades?
Can you accept that trading means making decisions under uncertainty?
Most traders only discover the answers through experience. The important part is to learn from that experience and adjust accordingly.
As a trader, your role is not to predict the future. Instead, your job is to follow your systems and let the data guide your decisions.
Knowing yourself also means understanding your limitations - whether that involves capital, discipline, or technical skills.
Step 4: Be meticulous and keep detailed records
There is a saying that the devil is in the details. In short-term trading, often close to a zero-sum game, small improvements can make a big difference over time.
Think of a ship crossing the Pacific. If it starts just one degree off course, it may end up thousands of miles away from its intended destination. Trading works in much the same way.
Small, consistent improvements can add up.
For example, we manually enter our trades into a spreadsheet every day. While it might seem easier to export the data automatically, doing it manually forces us to review every trade and often helps us notice details we might otherwise miss.
When we were day trading stocks in the past, this sometimes meant entering hundreds of trades per day.
Keep a trading journal
Maintaining a trading journal is essential. It does not have to be complicated, but it should allow you to easily review and analyze your trades.
Create a feedback loop
Annie Duke’s book Thinking in Bets is highly recommended reading for traders. At its core, trading is about making probabilistic bets. A strong decision-making framework and continuous feedback are essential for improvement.
Step 5: Interact with other traders and exchange ideas
Two traders usually think better than one.
For example, Quantified Strategies began when two traders happened to meet at a proprietary trading firm in Arizona about 20 years ago. One reason we are still trading today is the constant exchange of ideas and insights with other traders.
Without that interaction, it’s very possible we would have left trading long ago.
Very few traders succeed entirely on their own. Most benefit greatly from being part of a community.
Participate in trading forums, share ideas, and help others when you can. In many cases, the help you give will come back to you in the form of new insights and perspectives.