TraderInterviews.com has a great interview with the Downtowntrader, Joey Fundora. He gives some very detailed information about exactly how he trades including his various strategies, the tools he uses to scans the market, and the trading journal he uses.

Tim Bourquin is a masterful interviewer as always. Nice interview, Joey!

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There are many ways that trading can frustrate you, but one of the most frustrating situations is when you get stopped out of a trade only to see it continue in your direction. It could have been a very profitable trade but you were stuck with a loss. Here’s a trade I took in CRM that shows this exact situation. I was stopped out by a few pennies only to see the stock continue down:

A lot of traders will take a stock completely off of their radar after they’ve had a loss in it – that’s understandable. What’s the only thing that’s more frustrating than taking a loss in a trade? Taking two losses in the same stock.

That said, it could make sense to keep those stocks on your radar to trade again. The problem is determining whether it makes sense to take the trade if a setup occurs after you’ve been stopped out already. When you re-enter trades, you’ll undoubtedly be stopped out a second time periodically. This can be psychologically difficult to endure and this situation often weighs more heavily in your mind (“Why didn’t I learn my lesson the first time I was stopped out?”).

The StockTickr Trading Journal provides a great way to keep track of this using tags (a.k.a. categories). Tagging your trades in your trading log lets you track and analyze subsets of your trades. When I started re-entering trades that I was stopped out of, I would assign those trades the tag “ReEnter”. This allowed me to compare how these “ReEnter” trades were performing compared to my trading system overall.

After accumulating several of these trades over time, it turns out that these ReEnter trades were outperforming the system overall – in fact, they were significantly better than average. These results were telling me that for this particular system that I trade, re-entering trades made a lot of sense – even if it’s psychologically difficult. Having this type of data available to analyze certainly makes it easier to take trades where your fear is telling you not to.

Will you re-enter trades in your system? I’m interested in hearing what others have to say about this practice.

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Let’s say your trading is going pretty well – you’re trading a good strategy that you’re making consistent profits from and you’re comfortable with. Good traders never rest on their laurels, so you’re ready to take the next step. The existing strategy you trade never consumes all your buying power, so you’ve got some capacity for an additional strategy.

So what’s your next step? Research a completely new trading strategy, right? Not yet, I say. If you are already trading a profitable strategy, many times there are ways to improve, adapt, or add on to it to make more profits – sometimes a lot more. So before investing a lot of time in developing a completely new strategy which can be a long and arduous process, first look at the strategy you already trade.

This has a couple of obvious advantages – you’re already intimately familiar with how your system works and you already have a mountain of real, live trading data to test with which is always more valuable than pure backtesting with is 100% theoretical.

Here are some ways to look at your existing system to try to improve it:

1. Use a Profit Target – Look for ways to add a target order or modify an existing one. Targets are great for a lot of strategies because they lock in profit and they free up capital sooner.
2. Adjust Your Stops – Most traders use stops that are too tight. Look at your existing strategy and see if you can make more money by using a larger or smaller stop distance.
3. Find More Opportunities – If you’ve already got a profitable strategy, it often pays to relax your filter rules to generate more entry signals. Even if you end up with a strategy that is slightly less profitable per trade, the increased opportunities could be well worth it.
4. Look For Fewer, More Profitable Opportunities – This is the opposite of the previous item. It might make sense to trade fewer but more profitable opportunities by tightening your entry criteria a bit. Often times you’ll find that you can make the same amount of money with fewer trades (and therefore less risk). This can free up valuable buying power to allocate to other strategies.
5. Automate your Strategy or Part of It – How are you spending your time when you trade your strategy? Are there aspects of that routine that could be streamlined or eliminated? Perhaps the strategy could be completely automated. Maybe the strategy can be modified slightly to be automated.
6. Look For Cheaper Commissions – If you’re trading big enough, this could save thousands of dollars a month. Changing brokers can be a pain, so make sure the pay off is going to be worth it before going through the hassle of moving money, learning a new platform, etc.
7. Backtest Losing Trades in the Opposite Direction – Let’s say you’re trading a long strategy and 40% of those trades end up stopping out. What would happen if you took those trades that stopped out and traded them short? Think about it – the trades that stop out have invalidated your long “thesis” with your original strategy. Maybe there’s an edge on the short side with those trades.

Have you found any of these to be fruitful in your own trading? Which was most valuable? Any other approach that you’ve found helpful?

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