Just because you’ve been trading and made or lost some money, it’s not the end of the actual trading process. It doesn’t stop when you’ve hit that buy/sell button. You have to move onto the next stage and analyse your trading results, if you want to ensure continued success in the long term.
Why Analyse Your Results?
Why bother? Well, like any sports professional, to get better at what you do, you have to know and understand what you are doing both right and wrong and evolve from this learning process. When Tiger Woods wins a golf tournament, do you think it stops him practising, developing new techniques, learning from his experiences? The answer is no, and the same should apply to your trading.
If you’re off a string of trading losses don’t put your head in the sand – it is the worst thing you could do. Remember ‘there is no failure, only feedback!’
Firstly, before you even start trading, ‘Analysis of Results’ should be a major part of your trading plan. If it isn’t, then do it now! If you don’t have a trading review built into your plan you will fail.
If you are to make a success of trading, it does need to be taken seriously, so you will need to commit to excellence and adopt a growth mind set. Part of this will be a well-defined evaluation process of your trading.
So, how should you analyse your results?
It doesn’t have to be complicated or too mathematical.
Measurement of success in trading is simple. The bottom line (at the highest level) is how much money you do or don’t make. Further to this, you need a set of performance metrics / statistics and a place to record all your trading results.
Such metrics could include:
- Profit & Loss – by strategy, asset
- Average win/loss
- Risk/return ratios
- of trades placed
- of longs/shorts
- Average time in trade
- Time of day of trade
You could keep a log or journal of your performance. This could hold information such as:
- Trade entry & exits.
- Trade management numbers & details.
The trade evaluation process is more than just hard numbers. There is an intrinsic side to it as well. Additional things for you to consider are:
- Outcome Profit & Loss
- Performance Metrics
- Trader processes
- Market conditions
- A summative evaluation
- What has worked / what hasn’t
- Actions for improvement
- Actions to be taken
- Psychological trading issues – negative rituals etc.
- Costs – time & money – can these be improved upon?
You will need to commit to a regular routine; for example, you could choose to review your data at the end of a day, week or month. You need to create consistency in your analysis if you are to improve. You must also commit to actioning your findings. There’s no point doing all that analysis, if you are not going to do anything with it!
From my experience building systematic trading strategies within trading organisations, you can never sit still. You may think you have an edge, but I can guarantee you, that the rest of the market will catch you up and take it away from you. You always have to stay one step ahead and be constantly evolving.
By analysing your results and actioning what you discover, you can put yourself on the path to trading success. Remember : ‘What gets measured gets done!’