Friday, November 30, 2018

Rigorously Reviewing Your Trading

One thing I'll be talking about in Saturday afternoon's NYC meetup for My Investing Club will be an enhanced review process I've initiated for my own trading.  My general observation is that the frequency and intensity of review processes is associated with learning and performance improvement.  What I'm testing with the enhanced process is whether making the review structured and concrete also contributes to the learning and development curve.

So what I did was write out all my trading rules in a two-page Word document.  The rules are broken down to explain in detail:

a) What I need to see to enter a position (This includes criteria on multiple time frames);
b) What I need to see to tell me the position is incorrect;
c)  How I need to size the position;
d) What I need to see to take initial profits and the portion of the position to take off;
e)  What I see as a subsequent target and where to take the rest of the position off;
f)  When to not trade; when to trade more actively; when to trade more selectively.

This trading document/plan serves two important purposes:

1)  Review before trading starts to ensure that the rules are being followed in generating ideas, with special emphasis on the rules relevant to the prior day's trading;

2)  Review at the end of trading to assess whether rules were followed and especially to look at how a following of the rules could have improved the day's trading;

3)  Targeting one or more rules to focus on for the coming session to improve trading.

The idea is that every day is a practice situation in implementing the trading framework.  Over time, we become more grounded in our best practices, and we also better as rule-governed traders.  This is the value of having a true playbook for each market and strategy that we trade, as Mike Bellafiore has illustrated.

What I can tell you from my experience is that just the act of putting your trading into a very tight, clearly defined rules framework highlights the factors of what we most need to focus upon to improve our performance.  If we cannot convey our best practices on paper in a way that others can understand, how can we expect to be grounded in them in real time?

Further Reading: