Sunday, June 09, 2019

Three Key Mistakes Traders Make In Evaluating Their Trading

Ongoing evaluation of our trading enables us to learn from experience and guide ourselves toward improvements.  We cannot change what we do not observe and measure.  Successful traders study themselves--and their performance--every bit as diligently as they study markets.

On Monday, June 10th, I will participate in a webinar with the good folks at Bookmap, where we will discuss ways of evaluating and improving our trading.  The session will be at 11 AM Eastern Time and will include time for Q&A.  Registration is free and available here.

Traders make a number of mistakes when trying to evaluate themselves.  Here are three of the most common:

1)  Too general and subjective - The trader doesn't drill down to identify what he or she has done well or poorly in specific trades.  The evaluation simply notes general problems like fear of missing or traded too small.  The evaluation should not only identify specific mistakes, but also highlight specific ways of correcting those.  That turns the evaluation into goal setting and planning.

2)  Not enough information - The traders I work with at SMB utilize software that captures information on all trades all the time.  That way the traders know exactly how many winning and losing trades they've had; the average sizes of winners and losers; the win rate as a function of time of day; a breakdown of P/L by strategy; and much more.  All this information provides useful information about what the trader is doing well and what needs improvement.  Many, many times, the areas that stand out as needing work are ones that the trader was not focusing on.  In the webinar, I'll discuss the use of software to aid our evaluation.

3)  Not tailored to the trader - Some of the best evaluation comes from knowing what you do best and how you do it.  That way, you can evaluate yourself according to your best practices.  A generic evaluation sheet is probably better than none, but most helpful is an assessment that grades you on the dimensions most crucial to your success.  For example, if certain ways of managing your time and energy help your trading, those should be part of your evaluation.    

Many traders could be advancing much faster if they would only improve their learning processes.  In the Monday webinar and in future blog posts, I look forward to outlining ways in which we can become more effective learners.