On my property we have a relic left behind by the local Native Americans. The tribes that inhabited our land centuries ago marked their trails or water sources by bending tree saplings to direct others in the right direction. The trees developed to maturity leaving a distinct marker that the locals clearly could see and understand, benefiting all the tribe.
Your trades of the past are leaving valuable clues behind, as well, but only if you use the information wisely. If you plan on trading for a while, preferably as a business, it’s wise to evaluate what you have done in the past and what is working for you. If you think you won’t repeat trading blunders over and over again, you are wrong. The pain of a bad entry only lasts for a short time, and a few weeks later you will do it again. The markets are set up in a way that exploits bad behavior, and good traders are waiting to take advantage of your repeated mistakes.
The question is: What should you track from your trading trail? Maybe your entries into new trades are at the worst time of the day, and entering at the open or later in the day would have gained a much better position. Alexander Elder in his book The New Trading for a Living details his plan to track your entries and exits and give yourself a grade. My entries at one time were horrific. I used his advice and got that beast under control. The process is quite simple. Mark the daily high and low price of your trade, and compare it where you entered.
XYZ Equity: Enter 26.25, Daily high 27.10, Daily low 25.80
The formula is (Daily high – Enter)/(Daily high – Daily low)
(27.10 – 26.25)/(27.10 – 25.80) = .85/1.3 = 65%
The better grade/profit would be achieved by getting in a long trade as close to the daily low as possible. You can track your exit trades in the same manner.
One of the best exercises to do with your past trading records is to review the trades two months or so after you exited your trades. You may be in for a big surprise. Seeing what transpired well after you exited will give you a better perspective on the overall picture and what time allows.
Last year, I traded well over 700 option trades. At the end of each month, I went back and reviewed a dozen or so trades from prior months to see what happened. You may be delighted to note that you exited at just the right time for your trade. You may be disappointed to see that you missed the best move in a year. The idea is to learn, grow, and go forward. That’s where the profits are waiting!
Enuf said.