Wednesday, March 10, 2010

KEEPING TRACK OF YOUR PROGRESS

I recently finished reading the book "Stock Market Wizards" by Jack D. Schwager. In this book Mr. Schwager interviews 12 professional traders. All of these traders come from different backgrounds, engage in different market instruments, have many various techniques and strategies. All of them are very successful at managing not only their own funds, but many also manage very large funds for private and institutional investors. Aside from the requirements that any trader must abide by...self discipline, risk management, preparation, and sound technical knowledge, there was something that many of them did to greatly improve their trading results. One particular trader interviewed in the book is Mark Minervini. During his interview he began to talk about how tracking his trades actually helped him improve in his trading. Even after he had been involved in the market for several years, he decided to do a running analysis (journal) of his trades. He found that he was cutting most all of his winners off too short and letting his losses go to far. By one simple change, capped his losses at 10%, he could have improved his trading profits by 70%! Also by keeping consistent data on his trading results, he realized the by closing a losing position at 10%, he would not have to stay in the market waiting on that position to realize a profit and he would have more capital should another trade present itself. I think this is an eye opening revelation that is not stressed in many of the courses or workshops taught today. In my educational experiences, the importance of keeping track of your trading progress is mentioned but not emphasized. Well, I am telling you now, IT IS VERY IMPORTANT TO YOUR SUCCESS. How can you correct something you are doing wrong and improve upon it if you don't know what the problem is?

What should you write in your daily journal? First, you should write down the things you observe. If you see a particular pattern starting to develop on a certain currency pair, write it down. Track the results of that pattern including any details you observed such as the time frame, how long it took for the pattern to emerge and what size stops or limits you should use if you were to trade this pattern. I personally feel that keeping a journal or "paper trading" as many call it, is the best way to improve your skills in the market. You should write down any trade set ups you see happening in the market. Write down the price level, the factors you see that should cause this scenario to occur, your stop and limit and the time of day or session. Then, come back to the charts hours or even days later to see how it all unfolded. This will either build confidence in your method or show you where you need improvement. Once you establish a method that produces consistent results, you can always refer to your journal as a morale booster to prove that over a series of trades, you are profitable more often than not, and now you can use that conviction to engage in the market suppressing many of your emotions. You will know where your stop needs to be, where your profit targets should be placed and many times even know the probabilities of one set up versus another. The trading effeciency that I now enjoy all started with a simple daily journal started several years ago that I still refer to today.