Persistence and Prioritization in Trading
Persistence and Passion in Trading
Most individuals seeking to enter the field of investment and trading regard monetary gains as the sole objective, lacking any interests in the research and process involved in investing and trading. In reality, if one engages in the financial market solely based on advertisements or recommendations from friends or relatives without conducting prior research and constant reflection during the investment and trading process, the element of gambling becomes significant.
Investing and trading involve an ongoing process of discovering and resolving problems, requiring strong intellectual curiosity and problem-solving abilities. There are bound to be fluctuations in the path towards investing and trading success. Therefore, those who ultimately succeed are usually the ones who can enjoy the entire process. Questions such as: What asset classes should I research? Within the assets, which category? Which specific asset within the category? What strategy should I use to invest or trade this particular asset? Can the fluctuations in prices of various assets compensate for each other? Can the gains and losses from various strategies complement each other? Before answering these questions, a crucial one to ask is: Am I willing to dedicate more time and efforts to investing and trading compared to others?
If individuals only engage in the financial market with the idea of making easy money without dedicating time and efforts to research, in the long run, in the zero-sum game of the financial market, these individuals’ money will gradually become the profits of professional investors and traders.
Prioritization of Strategy Development and Portfolio Construction
The market is constantly changing. Although you may have some profitable strategies, there are times when these strategies incur losses. Often, the issue doesn’t lie solely within a single strategy since taking on risk is a necessary condition for profit. If you decide to spend time researching how to optimize your existing strategies or develop strategies with similar characteristics at this point, despite good intention, it might not be the most effective way to utilize your time.
To reap, one must first sow. For example, if all your strategies are currently trend-following types, no matter how you optimize or expand this group of strategies, when the market lacks direction, the probability of them all underperforming simultaneously is higher. At this point, if our portfolio includes strategies that are relative strength (pair trading) or mean-reverting types, it is quite likely that they will perform well in ranging markets. As such, they have negative correlation with trend-following strategies, compensating profits and losses for each other, leading to substantial improvements in performance in the shortest possible development time. Therefore, a good strategy development schedule usually prioritizes types that can complement existing strategies.
If we can produce multiple profitable yet low-correlation strategy types, our portfolio can stand firm in various market environments and consistently yield profits. If we always prioritize strategy development in the correct sequence and do the right things at the right time, in the long run, there is a great chance that our portfolio will consistently perform across various market conditions in live trading.
