Sunday, March 28, 2010

The Value of Keeping Score Religiously

What does the distribution of your trading returns reveal about your trading?

Are you aware of the distribution of your returns?

I recently wrote about some of the factors that separate successful traders from their less profitable counterparts.

I can think of several very successful intraday traders I know well. All keep score meticulously. All are on top of when they're doing well and when they're not.

When they're trading well, they identify what's working and aren't afraid to push on the accelerator. When they're trading poorly, they're quick to pull in their risk and figure out what's going wrong.

They have the ego to get big and take risk and the humility to get small and acknowledge weaknesses.

And what helps them do both is keep score.



Michele said...

Great post. Though I had been keeping track of my daily results, I hadn't thought of plotting a histogram like that. I just finished that task and the results were illuminating. Since I can't put the graph here, I'll just mention it's available on my blogspot blog for the interested reader.

Thanks for encouraging me to do a little extra homework.

Flowtastical said...

Study the trades you do daily and religiously. Without that you will find yourself in a war without a pistol.

I can't count the amount of money I've lost before I realized how important keeping score really is. Reviewing today's trades is the foundation for tomorrow's profits.

TradeMind said...

Dr Brett,

Again,it is amazing how timely your posts are. Recently i have been trying to improve my trade journal by integrating a scoring system for my trades. I have a tendency to worry too much about my P&L especially when i am close to an Equity Level Target. I've learned to curb that need by focusing more on the process of trading and following my rules, but it is still not enough.
I believe a scoring system is another way of turning my attention to the process of trading, and i currently do not have a formal way of grading my trades.

I know my systems have an edge for certain market conditions. The question is how do i score my trades. They can't just be based on P&L because then that would defeat the purpose of steering my attention away from the outcome goal and focus on process.

These are some aspects of a trade i would like to assign a grade to.

1) Evaluation of your trade idea.

I could measure how good my trade idea was by looking at the price action after i exit the trade. If i exited the trade early and the price action does what i expected it to do then my trade idea would have a high score, but my trade execution would have a low score.
The score would be based on how many R's i make vs. how many i leave on the table.

2) Did I follow my risk management, positions sizing , trade execution and trade management rules ?

For example, following 9 out of 10 rules would be the same as following 1 out of 10 rules,because rules are not meant to be broken. So its either and A or and F grade.

Am i on the right track ?
Am I making this too complicated ?

Thanks !

Andrew Palladino.