Don't major in the minors: do this to improve your trading

Winning and losing traders alike, often miss the mark when it comes to tracking performance...

Good evening valued subscriber,

It’s a given that how much you improve as a trader is in large part influenced by troubleshooting where you go wrong and making the necessary corrections.

Having worked with a number of students, it’s a fact that many struggle with identifying what metrics to track and this is to be expected when trying to figure things out on your own.

A common finding amongst traders (profitable and losing) is an overemphasis on tracking ROI and data.

I track weekly/monthly profit & losses for my own book keeping & whilst it’s reasonable to know how much you earn, it is not a useful measure for whether or not you are trading as well as you should.

Tracking ROI over a certain period or over a particular market and comparing it to previous year results can vary to a huge degree depending on the opportunities presented.

I trade the same market yearly in racing, cricket & golf. My ROI varies substantially…as it should! No market is static. In racing for example, the filters I use throw up different horses with different statistics and subsequently a varying probability that I will net a profit.

When looking at test cricket , results vary depending on teams and pitch conditions. Whilst of course I’m mindful of pitch characteristics and team tendencies and with racing I’m mindful of race track composition and horse tendencies, I can only make the most out of the opportunities presented, which are always different year on year.

If several back to lay opportunities arise in one festival, it’s only a by product of the data pointing in that direction and coming to fruition. Next year, opportunities may not be as bountiful. A lower ROI doesn’t necessarily translate to an eroding edge and it would be foolish to make such an inference.

An over emphasis on collecting data is another mistake. No matter how sophisticated your means of data collection, the past does not dictate the future. A mistake that traders make is trying to backfit past data onto the future and this can hinder profits. Things that haven’t happened before, happen all the time!

ROI and data are of course important metrics. A positive ROI tells you that you are doing something right. A sustained negative ROI means corrections must be made.

Data is also a prerequisite since it allows you to form an opinion or angle so that you can forecast what can potentially happen.

But the ultimate barometer of how well you trade is measuring performance.

This is a far more nuanced but more powerful measure that moves the needle when it comes to making profits.

How well do you execute on the opportunities presented?

Some of the questions you should ask yourself are the following:

• How strong was your rationale or conviction for getting involved?

• Was your entry/exit points based strictly on your own methodology? If not, then who or what influenced it?

• Did you stake correctly? Did you overstake? Did you under stake and leave profits on the table when the data leaned heavily into your edge?

• When and why did you cut your loss? Was cutting the loss based on a stop loss or on a reading of the market?

• Was you trades influenced by emotion? If so, why and what was the root cause?

• How calm were you when trading? How strictly did you adhere to a routine before a session?

These are a few questions that relate almost strictly to the performance of your sessions. Through introspection and journaling, by answering questions along these lines, you’ll be able to identify behavioural patterns that hinder your profits.

You can only get so good as a trader. There is only so much studying of past returns you can perform. Your means of gathering data can only be so sophisticated. But it is essential as a manual trader to track performance which is a by-product of preparation, not just materially but mentally.

I have lost count how many profitable trades I’ve made and underperformed because my decision making and execution was not up to par.

Journaling and introspection is an important part of improving performance and by doing this regularly, it will throw up it’s own set of questions.

Hopefully this has given you some food for thought!

Kind regards

AT

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