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Hedge Fund Market Wizard

Steve Clark: Do More Of What Works And Less of What Doesn’t

Clark’s core recommendation to traders is that they should accomplish more of what works and less of what doesn’t. It may seem unnecessary to state this because it sounds so prudent. However, many traders fail to stick to this strikingly obvious principle. 


Some traders who are good at taking well planned longer-term positions, end up taking short-term trades based on impulses in which they have no edge. Other traders with effective systems get bored of the computerized approach and take discretionary decisions that reduce their overall performance. Traders must figure out what they are best in and focus on those trades. 


One useful exercise traders should do is to evaluate their past trades by splitting winners and losers. This analysis often reveals trading patterns. When the gaining and losing trades are identified, Clark’s advice comes into the picture. Doing more of what works and less of what doesn't. 


Clark also warns traders against diversifying away from their expertise. Some traders succeed because they are good at doing a particular type of trade. This success often encourages traders to get into other areas in which they do not have an edge. 


Traders try to focus mostly on the entry point of a trade. However, entry size is more important than entry price because uncomfortable trade size may compel a trader to exit the trade on a trivial negative price move. 


One way of realizing that the position is too large is if one wakes up thinking about it. Trading size should be small enough so that fear does not overcome judgement. In Clark’s words, one must trade within his/her emotional capacity. 


The position size also needs to be adjusted as per the changing market environment. If the market volatility increases drastically, traders will have to reduce their normal exposure levels likewise, or else their risk will increase dramatically.


Flexibility is another basic quality for successful trading. If the piece action is inconsistent with the trade assumption, good traders are competent to change their mind instantly. 


Almost all traders experience situations when they are out of sync with the markets. It is better to get out of all trades and take a holiday in those times. This break will interrupt the negative spiral which can weaken confidence. When resuming trading, they should trade smaller quantities until their confidence is regained. 

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Units 10/17