50 Tips for Better Trading

This is a Guest Post by David Bergstrom, he is on twitter @dburgh he is the guy behind the Build Alpha software. He has spent many years researching, building, testing, and implementing market making and trading strategies for a high frequency trading firm, a handful of CTAs, individual clients, registered money managers, and even aspiring retail traders. His website is BuildAlpha.com.

50 Tips for Better Trading

  1. Quantify your edge
  2. Diversify across markets
  3. Diversify across timeframes
  4. Diversify across trade durations. Have strategies that trade quickly and some that look for big moves.
  5. Trade multiple uncorrelated strategies
  6. Trade mean reversion, trend following, and price pattern strategies
  7. Use Monte Carlo simulations to create proper expectations
  8. Use out of sample testing
  9. Don’t rely on one strategy or indicator
  10. Test everything. Did you know the day after a bearish engulfing bar in the S&P500 has a bullish tilt?
  11. Backtest your strategy. A good backtest does not guarantee good forward results. But a bad backtest almost always will lead to bad forward results.
  12. Stress test your strategy
  13. Use alternative data and be creative 
  14. Keep entry rules simple
  15. Negotiate for reduced commissions
  16. Use Monte Carlo to understand drawdown possibilities
  17. Trade strategies that suit your personality
  18. Have a balanced life
  19. Define what a good system is prior to attempting to create one
  20. Do not cherry pick trades – take every single as long as your results remain within expectation
  21. Allow law of large numbers to play out
  22. Converse and chat with other traders
  23. Be properly funded
  24. Understand ways to determine if properly funded
  25. Test new code execution with reduced size or on sim account first
  26. Have clear rules when to turn off a strategy
  27. Remove and manage as much emotion as possible
  28. Test different stop levels
  29. Include different market regimes in backtest 
  30. Read more and tweet less
  31. View and understand seasonal tendencies
  32. View and understand time of day tendencies 
  33. Have ample sample size (trade count)
  34. Do not compete with high frequency traders
  35. Vary the noise in the data set and test again
  36. Understand tax advantages of different markets (futures for US traders, e.g.) 
  37. Ignore personal opinions and preconceived notions when researching and trading
  38. Invest in a Virtual Private Server if algorithms are trading all hours
  39. You get what you put in – be research oriented and work hard
  40. Educate yourself… continuously
  41. Do not hunt for the holy grail strategy! The holy grail is a portfolio of systems not one amazing system
  42. Understand profits are additive and cumulative but drawdowns (if uncorrelated) are not.
  43. Automate your execution if possible so you have more time to research/refine your edge(s)
  44. Assess performance monthly not trade by trade
  45. Do not hedge every single trade your systems make
  46. Do not compare yourself to others – you never know how much risk they are taking or capital they have
  47. Align your profit (and risk) expectations with your account size
  48. Track how your strategy performs live compared to a sim account : real-time slippage
  49. Do not underestimate transaction costs (slippage, commission, missed entries, etc.)
  50. Use multiple timeframes and Use intermarket signals