Performance Monitoring

How do you know if you are trading well? One way obviously is to monitor the balance of your trading account, but how else can you keep track of your performance? How do you know that you can’t do better and make better decisions? It is imperative that you monitor your performance and keep track of how your trading is going. When was the last time you reviewed an old trade? What were your last three poor trading decisions and what impact did they have? If you can answer these questions, you may already have a process of reviewing past performance even if it is subconsciously. A methodical process by where you thoroughly review your past trades and even positions you considered but did not enter will allow you to learn from your mistakes, but equally, reinforce the good decisions you did make and the positive consequences those decisions had. It is well accepted that this is a characteristic of the best traders in the world. They have a passion for their trading and will often and periodically review all of the trades that they have conducted including all the profitable and losing trades, and learn from them. At the end of the trading day or week, that does not mean for them that they stop thinking about their trading. They will always be interested in learning new ideas and looking to build upon their trading and information systems they already have in place. There are a number of ways in which you could structure a review process. In most trades, including profitable ones, there is most likely a lesson to be learnt, which over time can only benefit your development into a professional and disciplined trader. What you may end up identifying are patterns in your own behaviour. If you can identify a pattern, or some strengths and weaknesses in your own behaviour, you can look to work on those and improve different facets of your whole trading approach. When considering how to implement a review process, it may be prudent to ensure that you do not review a trade within hours of it being closed. Clearly any emotions that you had with the decision to exit the trade will still be fresh in your mind, and consequently there is little doubt that your objectivity will suffer. With this in mind, it is important to separate the review of a trade from the trade itself with a reasonable amount of time, i.e. enough time for it to have cleared your mind. You will find a period of time between reviews that is appropriate for your own frequency of trading.

The maintenance of a trading diary will facilitate the review process. In your diary you could note specific details about your decision to enter a trade, including why you entered the position, any feelings or emotions at the time of the decision and your initial stop loss. This information is important so that in the future when you come to review the trade, you can be reminded of the relevant details and adequately review the trade.