When it comes to evaluating one's trading performance, it is very useful to carry out regular reviews of past trades and think about whether something could have been done differently.
To the uninitiated, it can seem like most people only ever have winning trades. But that’s not what happens in the world of real trading.
Tips to help you build a stronger trading evaluation strategy
The following pointers highlight common trading mistakes and show how you can avoid these by building a trading evaluation strategy.
Build a trading diary
Building a trading diary is easier than ever before. Chances are that you are probably placing your trades on a desktop machine, tablet or smart phone, all of which offer a way for you to make quick notes about why you decided to buy or sell that particular market. Taking a quick screenshot of the chart when you placed your trade takes just a couple of clicks. All of this information will be very useful when you finally sit down to review what you have done and will help you see if there is any way of improving your future strategies.
Evaluate winning as well as losing trades
Assuming you are doing this as you go along, you need to commit to making some time to sit down and go back through your trades. Ideally this should be done away from the excitement and gyrations of the market, so weekends can be a good idea. Make notes about winning as well as losing trades. If you were faced with the same market today, what, if anything, would you do differently? Is there a common mistake that is cropping up time and again that you need to focus on to avoid this in the future?
Study your trading charts
There are some mistakes that many of us repeatedly tend to make when we first start trading – and you may be able to spot these in some of your own trades. A common mistake, and temptation, is to go against major trends. It is human nature to try and pick tops and bottoms in the markets, but this is not a consistently profitable approach. Printing out charts when you place trades can make this tendency easy to spot when you go and do your review. It lets you know what you should be aware of in your future trading. Forewarned is fore armed!
Think about where you are placing your stop-loss orders
Setting very tight stop losses is a popular mistake for many. No one likes losing money but sometimes, placing a stop loss too close to your entry point is self-defeating as you are not giving the market enough time to prove you right. Would the trade have worked better if it had a bit more breathing room? Regular reviews will help you pick up on small tweaks like this that could be made to your strategy and could end up making all the difference between whether you win or lose trades.
Trading evaluation summary
One final thought: it’s important to not be too critical of yourself when it comes to trading losses. No strategy or system is right all the time and there will always be losing trades along the way. But hopefully, the amount you make when your trades work out will be larger than the total of the losses, and regular reviews of your performance can help your own trading move to this goal.