It is common to see books and threads talking about testing trading set ups and systems etc but I never really see many people talking about reviewing your trades & trading so I thought I would start a thread on that topic.
To me trading is a business and should be run like a business. A good business operator understands their business inside and out and trading should be no different. This means understanding why it is making money (profitable periods) or why it is losing money (draw-down periods) and then acting on that information to help reduce draw-down or enhance profitable periods. Think of any successful company and they will all run extensive review processes to try to find ways to improve their businesses, so why should our trading be any different?
Finding ways to improve all aspects of your trading is made easier by understanding exactly what you are doing right and what areas you struggle in, this is where a solid review process comes in.
I'm not talking about just reviewing your trading stats, I mean reviewing every process of your trading.
- Individual trades
- Profitable Periods
- Draw-down Periods
- Thought processes when entering & exiting trades - reviewing trading diaries if kept.
- Trading Stats for each month, quarter, 1/2 year and full year.
For most individual trades I mark up a chart with the entry & exit listed and then review the trade along these lines
- How good was the entry?
- Did I follow the rules of my set up?
- If not, why?
- Is there a way to improve this entry set up?
- If yes, how?
- What were the market conditions like at the time of this entry?
- How good was the exit?
- Did I follow my exit plan with this trade?
- If not, why?
- Is there a way to improve my exits for this set up?
- If yes, how?
- Did I follow my plan on this trade?
- What effect did market conditions have on this trade?
- Is this set up & type of trade suited to this type of market?
- What was the share price 2 weeks (or a certain number of bars) after the trade?
- Did I miss a chunk of the move I was trading due to a poor exit(in hindsight)?
- Is there a way to capture more of this move I traded?
- General comments on this trade
If I notice any patterns emerging I try to address these issues and implement the improvements into my trading. I find this handy as I can keep my finger on the pulse as to why patterns or set ups are starting to fail and can help me to keep my strings of losers to a minimum.
Profitable & Drawdown Periods
(but this also applies to my trading Stats for each month, quarter, 1/2 year and full year), I tend to only review these periods when I either notice I'm in draw-down or after an extremely profitable period but I do a general review when I review my stats at the end of each period.
- Why was this period so profitable/unprofitable?
- What phase was the market in during this period? And how did this affect my trading during this period?
- Is the strategy I was using for this period suited to the market conditions?
- If not why wasn't this identified earlier and rectified?
- How could I have enhanced my profit in this period? Can I apply that to my trading going forward?
- How could I have reduced draw-down in this period? Can I apply that to my trading going forward to reduce future draw-down periods?
Obviously this can be a very time consuming process and a little bit painful at times but I have found the improvements it has made to my trading has been well worth the effort.
I realise some traders will think this is a waste of time and that's fine (I do what works for me) but if you do have a review process feel free to add your thoughts, as I would be interested in other ideas that way I might be able to improve my review processes