Thursday, May 01, 2008

The Importance of Keeping Score

How much do you know about your trading?

* Take the absolute value of your daily gains and losses and divide them by your total portfolio value. How much of your portfolio are you putting at risk each day on average? 1%? 3%? 50 basis points? How has this changed over time? How does this change when you're making money? Losing money?

* Take a look at the 10% of your largest trades (i.e., when you've taken the largest positions). Have those tended to be winning trades or losers? Do you have a greater edge when you're more aggressive or less?

* Take a look at your trading results as a function of day of week and as a function of time of day. Do you trade better at certain times than others? Take a look at how you start a day, week, or month: does this affect how you trade subsequently, and does that affect your overall profitability?

* Take a look at how long you hold winning trades vs. losing trades. Do you get out of winners quicker than losers? Do you have a small number of large losing trades that you hold well beyond your average holding time per position?

* Take a look at your trading results after a down day or a down week. Does being down affect your trading? Do you trade better or worse when you've lost money the day or week before? How about trading results after an up day or week? Do you trade better or worse when you've been making money?

As I emphasized in my performance book, all of these are metrics that you can keep in a trading journal to track what you're doing right in your trading and what needs improvement. Most traders don't have an objective picture of how well or poorly they're doing, because they don't track the drivers of their success or failure.

In my recent post, I mentioned two very nice resources for tracking your performance. Another tool you might want to consider to track your performance is the Trade Performance program developed by Steve Geringer. In addition to helping traders track their performance as a function of date ranges, security types, symbols, etc., Trade Performance doubles as a tool for journaling, trade planning, risk management, and business planning.

Steve is making a "lite" version of Trade Performance available to traders free of charge. This version contains much of the functionality of the standard version, with the exception of tax reporting and automatic importing of trade data. Screenshots of the program might help you figure out if the program would be helpful for you.

I work with quite a few professional traders. One thing that distinguishes them as professionals is that they keep score religiously. They know how much risk they're taking, how well they're performing, and whether their trading is better or worse than usual. That helps them make rapid course corrections, pull back their risk, and keep overall losses modest. If you don't work for a firm that keeps score for you, dedicated tools are worth looking into.

Some tools for tracking metrics, in addition to Trade Performance, include:

If you know of others and can recommend them, please add to this list with comments to this post. Thanks!


Trader Psychometrics


Globetrader said...

Funny how certain themes come up at the same time. I wrote an article this morning, where I emphazised to a reader the importance of keeping a journal and posted an example of the journal I'm keeping now for 4 years.
It's just an excel spreadsheet, which gives me the information I need to know. Unfortunatly it has become quite complex over time, but that's to be expected I guess and as long as I know what what number means, that should do. I'm a self-employed trader:-) so any reporting goes to me.
What I miss and what might truely help is a way to attach charts to some of the days. That would help in identifying things which worked in the past and which might work again now. I've seen myself go in circles a lot, coming back to setups I used a long time ago. And having a chart ready to see these would have helped me. But I'm not good enough in Excel to add links to charts on my harddrive without embedding them directly and blowing the whole sheet out of proportion. So it has to do as it is.

SSK said...

globetrader, I built my own with charts, take a look, if you like it, I can configure one for you as a gift. In the latest version I included an area to write about the trade and have added new and improved charts since the intial version was made and described at this link I keep individual months starting with the same amount so that I can compare performance with out additional leverage, and a continual version for all activity including increased leverage. Our Email is TAMTA@DAYTRADINGFUTURES.ORG

SSK said...

globetrader, I created my own program that tracks trades also,you can scale in and out, it has a manual override, a tax module, and I just added a journal, and am always adding something!It has some charts and other items that work well. I have beta tested it for 4 months, and havent found any bugs in it, (or should I say, I killed them all!) If you would like I can configure one for the markets that you trade complimentary.The one I use is the Emini S&P. I also have one for the QQQQ. I can configure one for any market. All I need is the minumum price movement in dollars. Here are a couple of links that you can view how it works, and what it looks like. In my own trading, I keep track on a month to month basis, with the same starting balance so that I can compare trading with out the use of leverage, and I keep a version that tracks the trades from the beginning of the year where I utilizes leverage going foward. Here is the link to the simulated data that it is tracking, and this link is an outdated but informative instructional video Our email is TAMTA@DAYTRADINGFUTURES.ORG Best, Steve

Brett Steenbarger, Ph.D. said...

Thanks Globetrader and Steve for the perspectives on journaling, keeping score, and integrating charts. I have found journals useful for learning about myself and also for learning about markets. The annotating of charts has been useful for the latter.