Tuesday, March 24, 2015

Best Practices in Trading: Conducting Video Reviews

One of the limitations of reviewing our trading and constructing plans based on our reviews is that our look back usually is tainted by what we recall and what we do not.  Particularly if we trade actively during a day, it's unlikely that we will recollect all the factors that went into good and poor trades.  We may even forget what specifically happened during a particular trade that might have made it work out or not.  Our memories are biased by our emotions, as well as hindsight and the factors that most stick out in our mind.  It is difficult to effectively review our trading if we can't accurately recall our trading!

The way sports teams get around that, of course, is by videorecording each play and examining the video in detail to spot best and worst practices.  Today's best practice is offered by reader Chris Britton, who video records his own trading and uses the review to work on his performance:

"I am a discretionary day trader and I trade the 10 year note and 30 year bond futures.  My pre-market analysis consists of identifying key support/resistance levels (yesterday's value area high, low, vpoc, etc).  For actual trading and getting a feel for the market action, I watch the depth of market with support from a chart to watch for emerging support/resistance levels.  

What I find helpful in doing trade reviews is recording my trading session (using Camtasia or the like).  At the end of the day, I cut down the video to the important parts that consists of trades that I make and trades that I missed or whatever I feel may make an important point.  Then I add in notes on the video that point out interesting clues that I keyed in on or missed.  The finished video is anywhere from 10 to 30 minutes long depending on how many trades I make.  The key points in the video present the context of the price action, the order flow on the depth of market that show why I entered (or did not enter), and, in some cases, why I exited when I did.

How does this help me?  First, the recording helps me identify strengths and weaknesses in my ability to correctly read the order flow.  From that, I have built a library of my own "best setups" or "avoidable pitfalls".  For example, I can review trades that had a successful breakout at some resistance level and compare the order flow from those to trades that had a failed breakout.  The key element is spotting what the order flow was doing that made the difference between the two.  If my skills can't explain it, then at least I have the library to review in the future for when my order flow reading skills will be improved.  

Second, the trade reviews at the end of the day are actually enjoyable.  Even if a trade is a loser, I enjoy watching the video.  That is because in some way, I improve my depth of market reading skills. Before I was making recordings, I dreaded the losing trade reviews and trying to remember what I did wrong.  That opened the door for bias to creep in which make learning from the mistakes harder.  With the recording, I learned that I can't escape my own accountability in making errors.  

Finally, play back reviews during slow periods or on the weekends actually help keep my mind sharp and prepare me for the next trading session.  I have found that while watching these reviews, the dialogue in my mind takes on an instructor type role where I try to explain the play by play action."

I particularly like Chris' observation at the end, where he notes that watching reviews places him in an instructor role.  That reflects the impact of self-coaching.  When Chris watches the videos, he is like a coach reviewing game film with players.  Going to specific portions of the video, reviewing the elements of performance in detail, and noting what could be done differently adds a level of detail to review that is impossible to replicate with a retrospective journal.  As Chris notes, the reviews become enjoyable, because they are constructive--they teach--and don't simply point out negatives.  

If pattern recognition is a function of cognitive focus and amount of exposure to those patterns, then a focused, video-based review is a great way to accelerate a trader's learning curve.  The trader who has watched markets during the trading session and then focused on patterns in post-market review simply has more learning experience per unit of time than the trader who fails to conduct review.  The video review is a powerful tool for learning and self-coaching.