Enter The Performance Phase To Maximize Returns

Each and every trader is navigating their own unique path. At TraderLion, we strongly believe that trading journies are primarily split into two different phases: Consistency and Performance Phase in Trading.

There’s a phase where traders seek a consistent – static – rigid system to follow in what is considered to be “black and white” criteria to perform at a consistent level. Then there’s a phase of refinement, where the textbook approach is no longer needed, and an intuitive understanding of market dynamics helps in optimizing their performance.

That “end-phase” is where traders focus on agility, being less rigid, and letting the market dictate the profit-taking rules.

Consistency Phase

Increase confidence
Increase your account methodically
Adhere to non-negotiable rules
Remove volatility from your equity curve
Emotional control

Performance Phase

Trust in yourself
Increase your account substantially
Become flexible
Hear what the market is telling you
Emotional mastery

The Consistency Phase Rules

The Consistency Phase requires you to be rigid and black/white in your approach. Static rules are followed regardless of the market type and environment.

Therefore we created general guidelines if you are in the consistency phase of your journey that work and help you to achieve consistency.

Swing Traders: The goal is to take risk off the table & take money out of the market.

• Sell 1/2 when the stock reaches 5% & move stops up to even.
• The only exception to this rule is on the first day – If the stock hits 10% in one day, sell 1/3 and move stops up to break even.
• If it fails to hit 10% but is above 5% continue to sell 1/2 and move up stops.

Position Traders – The goal here is to take money out of the market while still leaving a solid position to work.

• Sell 1/3 when the stock reaches 10%. Treat stops as normal.

Consistency Build Habits

These are the bare minimum guidelines and ones that traders should follow as they seek consistency. Consistency builds habits and a solid foundation for your trading.

While in this phase write down ways you could’ve done better, the focus in this phase is not on big returns. The focus in this phase is on building routines, building consistency, and gaining a feel for the general markets and how they trade.

This phase cannot be skipped. No trader can go straight for performance and hope for the best. Building a solid foundation and solid habits is key to long-term success in your journey.

Consistency is achieved when habits form and you are mechanical in your process, when you have ample notes about the market and yourself, and have improved throughout multiple market cycles.

Once the consistency is achieved, now what? How do you know you’ve achieved consistency? 

Consistency is not achieved in 1 or 2 or 3 or 4 weeks. It’s a multi-month and for some multi-year and most importantly multi-market cycle (uptrends, market corrections, and downtrends).

If you are seeking a true shortcut and think you can skip this phase and gun for performance you’ll eventually fall flat on your face and rather be forced to go through this phase when you are serious about your trading and the journey aspect of it. Focus on the process, not the prize.

Consistency Phase Focus

Creating Habits
Forming a Process
Strict Rules
Incremental Improvement

Prize
Big Returns
Fast Results
Short-term results

The Performance Phase

The Performance Phase and its profit-taking rules take into account the areas that you’ve identified for improvement in your personal strategies and put that into implementation.

We want to note that at the top of this post, we referred to this as the “end phase”. We put this in quotations because trading is a never-ending process – This is just the last stage however you will always remain a student of the market.

This is the phase where you realize that there is no perfect formula that you can write on paper, and follow day to day. It’s different for each trader because of the risk appetite aspect that is involved. Below we highlight some steps to help you in the Performance Phase:

Performance Phase Focus

Personal Improvement
Listening to the market
Steepening your equity curve
Flexibility

Other People
Other time frames
Other trading styles
Noise

Adapt To Different Market Types

Market Types are market environments in which traders classify themselves based on the general health and breadth of the markets, how leadership is acting, and how stocks are performing on a net basis in the general markets. Market Types can be a component that can dictate your profit-taking rules.

• For example, in a Market Type that has broad leadership, or a Market Type near or post-FTD (Follow Through Day), you’d want to change your profit-taking rules to maximize gain. It does not mean that you can throw risk management out of the window – We are strictly talking about Profit making rules here.

For Swing Traders:

• Near a FTD or a trend change in the markets, you can change where you take 1/2 of the position off from a 5% gain to 10% or even 15%. This improvement in your systems will come about naturally as you develop a feel for the markets in the Consistency Phase as you go through multiple different market cycles.
  

You’ll leverage experience, process, and the foundation you built in the Consistency Phase here.

The key here is how you feel – At this phase feelings are different, they aren’t emotional biases that overcome logical processes or risk management rules like the Consistency Phase. Instead, you are beyond that, you already understand and have emotional control. 

The feelings we are speaking of are a fluidness to the markets that you now have access to and begin to observe.

You already achieved consistency and are now looking to maximize returns. Taking profits out is always a good habit but we know the big money is made by participating in full moves and letting our stocks work.

You can continue to have targets for profit-taking and expand them if it helps you build your account, or you can feel out the market completely and move stops up on your full position to logical new areas of support and let the full position work until it breaks.

For Position Traders:

• In the same near-FTD scenario, consider selling the first 1/3 of a position at a 20% gain, while maximizing returns on the majority of the position as it continues working. You can also decide to just let it ride and take profits based on how the stock is acting.

Putting It Together

After you find consistency your goal becomes entering the Performance Phase. Your ruleset will shift from concrete buy and sell rules to more intuitive rules relating to your positions management.

You might want to take your first profits out if the incline steepens significantly and goes parabolic on you to lock in some of the new gains. The difference now is you are more in tune with the market.

You are becoming more flexible and letting the market dictate your actions completely.

You already have rules that are non-negotiable and can maintain a steady equity curve but you realize that you have flexibility in your approach that you can play around with in order to steepen your equity curve. 

If you have identified the Market Type to be less cooperative and breadth/leadership doesn’t look as good as the previous scenario then you can get more forceful and return to a variation of the rules from the Consistency Phase.

The type of market dictates your approach – listen to the market and adapt your aggressiveness to what it is saying.