The obvious way to monitor and review your trading performance is to check your account balance, however we can dig a little deeper than that and explore our performance further.
As part of your trading, it is important to monitor your open positions and overall performance, and an effective way of doing this is to maintain a trading diary. A trading diary should detail all your trading decisions, including reasons for initiating a trade, your emotions when opening the trade, notes concerning the short- and medium-term trends observed in the price and perhaps any news surrounding the trade period, as well as daily adjustments of exits. A trading diary provides you with a methodical way of maintaining a clear focus, and it can also assist you with learning from your mistakes.
It is also imperative that you monitor your performance for a variety of reasons. The most basic of these is to ensure you keep close watch on your trading capital, bearing in mind the most important aim in trading is to preserve your capital.
Further, monitoring your performance allows you to review your past trades and learn from your mistakes. The fact is simple: you are going to make mistakes. You are not a robot and there are going to be times when you act irrationally and not in accordance with your plan. What is essential, however, is to recognise that this has occurred and learn from the experience. Ensure that mistakes do not repeat themselves.
Your trading diary is where you can record your emotions at the time of position entry and exit; over time, trends in your behaviour may become obvious. You will be able to link those trends with your winning and losing trades. This is a tactic employed by some of the best traders in the world. They will periodically review all the trades they have conducted, both winners and losers, and learn from them. I can assure you that you will never stop learning about the markets.
I had the pleasure of working with the premier fighting force in the world, the US Army, for two years. I believe one of the reasons they are the best, regardless of the fact that they have the best military equipment available, is the ruthless and systematic way they review all activities. Whenever they conducted an activity in the field, they would stop afterwards and proceed to review everything that happened from beginning to end, using a process called the After Action Review (AAR).
This AAR might last thirty minutes or it might run all day, but the intent was always to identify what had actually happened, what was good and bad about what happened, and what they could do differently next time to improve the task. A fourth step in the process, which was sometimes carried out, was to conduct the whole activity again with a view to applying the newly learnt lessons. At all times, the focus was on continuous improvement in everything they did.
A review process should definitely be a part of trading. In many trades, including profitable ones, there is a lesson to be learnt. Over time, these lessons can only promote your development and maturity as a professional and disciplined trader. Reviews can help you identify trends in your own behaviour. For example, you may notice that a large percentage of your losing trades were opened within the first hour of trading for the day. If you can identify trends and patterns, and strengths and weaknesses in your own behaviour, you can work on and improve your own trading mindset for the benefit of your overall trading performance.
However, I want to address what I believe is a common misperception. Many will suggest that whenever you have a losing trade, there will be a lesson to be learned, due to the very fact that you lost money. I don’t agree with this. You will have many losing trades where you did everything right in accordance with your trading plan – the trade just didn’t move in the direction you had anticipated. There may be nothing to glean from this single trade.
It also may not be wise to review a trade within hours of the position being closed, because your objectivity will suffer. Almost certainly, any emotions felt about that trade will still be fresh in your mind.
Accordingly, it is important to separate the review of trades from the trades themselves by a reasonable amount of time. You will find a period of time between reviews that is appropriate for your own frequency of trading.
To assist in your reviews, at the time of opening any position, you may wish to print out the chart of the instrument you traded, and note in point form on the chart why you entered the position. It is also useful to record any feelings or emotions at the time of the decision and, in big red numbers, the initial stop loss point.
It is important to have all relevant information recorded so that in three weeks’ time, for example, you can recall the important details of the trade and adequately review it. If you record all of the above information on the chart, it will be handy when you review the trade — you will be able to look at the same chart you were assessing when you made the decision, but with the benefit of hindsight.
I personally keep a ‘lessons learnt’ folder, separate from my trading diary, where I record all the trading mistakes that I have made and the lessons that I have learnt from them. The format is like that of the US Army’s AAR, with the obvious exception of not being able to conduct the trade again.
Your trading diary should note any times you have pyramided into a position and where you have adjusted your trailing exit level upwards to follow the rising price. This information will also be essential for reviewing your trades.
Like many things in life, you should be seeking constant gradual improvement. Monitoring your performance is an important part of your overall trading journey. Successful traders are always seeking continuous improvement in all their trading components and you really should be no different, if you are to achieve trading success. At the very least, develop a process whereby you review your trades. I am confident you will become a better trader as a result.
The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.