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How to Review Your Trading Results

How to Review Your Trading Results
April 20
01:52 2012

The chances are good that for anything you take seriously in your life, you evaluate your performance periodically. From your job performance to your golf game, you probably like to know how you’re doing. Well, your trading should be no different. While you certainly track your overall results in dollar terms, you should also be looking at other aspects of your trading to see what’s working and what isn’t. Here we’ll offer some pointers on approaches to trading performance evaluation.

(All of these metrics will probably be most easily tracked in a spreadsheet, by the way.)

First, take a look at your trading days. Set up a table with columns for each day of the week and two rows for buying gains and buying losses. In other words, you want to see what percentage of trades in which you bought on a Monday resulted in gains and what percentage resulted in losses, and so on for each day of the week. You’ll then do the same in a second table for selling days, to see what percentage of trades in which you sold on a given day resulted in gains and what percentage resulted in losses.

Next, you can do the exact same buying and selling analysis for months. Your table for this evaluation will have a column for each month, but you’ll look at the same percentages: gains vs. losses for buying in each month and gains vs. losses for selling in each month.

(Elsewhere we’ve discussed the best buying and selling days and months by index and in bull and bear markets. Compare the overall statistics to see how they stack up to your personal performance.)

One way to gain some insight into your trading personality is to look at how (or whether) a gain or loss on one trade affects your performance on the next trade. All this evaluation requires is a simple four by four matrix, with “gain” and “loss” columns and rows. As a quick sketch of the chart will show you, you will be analyzing in percentage terms how often a gaining trade (“gain” row) was followed by another gaining trade (“gain” column) or a losing trade (“loss” column). You’ll do the same for losing trades followed by gaining or losing trades.

Are your gaining trades consistently followed by more gaining trades, and conversely your losing trades by more losing trades? (In other words, you’ll see substantially higher percentages in the “gain/gain” and “loss/loss” blocks.) If so, it’s probably a sign that your confidence (or lack thereof) is strongly affecting your trading. If the percentages are fairly equally distributed, your trading strategy is probably winning out over your psychology, which is a good thing. Remember that psychology isn’t the only factor at work, of course; successive gains or losses will sometimes be a product of overall positive or negative market conditions.

The main drawback to this particular evaluation is that when you’re conducting multiple trades, it can be difficult to determine a true trading sequence. Most traders, of course, are working multiple trades at any given time. So an alternative is to set the sequence by buy date, sell date, or—better yet—both of them separately.

Finally, the real meat of this sort of evaluation is to look at trading strategy. If as a technical trader you trade particular patterns, set up a matrix to show gains vs. losses for each pattern you use. On some occasions you can get two trades out of the same pattern (usually a long position followed by a short or vice versa), so you should distinguish long and short trades for each pattern.

This analysis can be a real eye-opener, showing you that you don’t trade certain patterns well or conversely are very comfortable with others. You can also add depth to your analysis by adding columns for average profit and loss for each pattern (that is, average profit when it succeeds and average loss when it fails). Dollar terms or percentage terms will each work, but percentage terms will give you a much more consistent and useful metric for comparison.

Take the time to set up this basic analysis—if you are even moderately comfortable working your way around a spreadsheet, it will be a breeze—and maintain it. Doing so will give you real insight into what’s making you money and what isn’t, and should give you the tools to boost your trading profits.

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