Yesterday got inspired by watching YouTube documentaries on Tiger Woods. Tiger tried to learn from every single round he played (competition or practice) – he’d go over the round in his mind to figure out potential improvements – this reminded me of the need to diligently documenting + reviewing completed trades, always looking for weaknesses and findings ways I can improve.
Am planning to write about the general benefits of reviewing one’s trades and trading processes in the near future – similar to how I tried to outline the benefits of blogging, the benefits of trading buddies, the benefits of working in a trading office etc! But for now, to illustrate my point, I decided to share a bunch of trading insights I made today after reviewing trades from the past 2-3 weeks. Might useful for other traders to quickly check out!
Insights coming out of my review today:
[WARNING – This will most likely put most non-traders, and probably most traders, to sleep! It’s insightful and exciting for me – but who knows about the rest of the world!]
- Paying attention to how I feel (emotions, physical feelings, mindsets) is making a big difference to how I approach the trading session, and how I approach individual trades – it leads to me passing on many situations that I’d normally trade – however I still ended up taking the same amount of trades, as not being in mediocre setups has allowed me to continue hunting for higher quality ones – and it lets me stay fresh for longer.
- I seem to have underestimated the true cost of taking trades when I am not feeling right on the money, or when I leftover emotions from the previous trade(s) – it’s not only the ‘cost’ of getting into a trade I shouldn’t get into; it’s also the opportunity cost of missing out on better, higher quality setups – creating more anxiousness by virtue of knowing that I am not doing the best I can, then having trouble managing trades simply because I started out from a spot/entry price, and triggering tiredness, and then creating more negative emotions from having more negative results. It’s been quite an insightful week thus far. Could this be a breakthrough?
- The rule of thumb trade management rule about two consecutive closes on wrong side of EMA seems to be a good, simple and effective approach. Always use the 5M for judging this, even if the XTF (execution timeframe) is 1M or 15M – if XTF is 1H, then use 15M for that purpose.
- Closing trades early – often driven by fear – rather than simply following the basic trade management rule, has had a big adverse impact on the overall trading results. Yes, I reduced losses on the trades that didn’t work out – however the foregone gains on premature closes that turned out to be winners, were far greater – by a factor of 2-3 times.
- On average, half of the setups I take work – regardless whether it’s reversals or continuation/trend-following. Reversals work about half the time, regardless whether I use 123 patterns as part of the setup or not.
- There are still occasional trades where in hindsight I judge the setup to be poor – not many though – how many out of how many?
- Thus simply taking good setups and using the trade management approach that is set out above, should work, without needing to worry about micro-managing the positions
- Am finding it helpful to have other traders around that I discuss trading matters with – whether they be traders belonging to the hedge fund, or trading buddies that I have created alliances from retail trading circles (mostly the Veteran Traders Project and the London Traders Network)
If you want another example of a trader that does extensive reviewing, check out Bund-trader Adey on his blog takingonetradeatatime.com.