We often get caught up in the “Xs and Os” of trading systems and market analysis, and often overlook some rather simple and straightforward “common sense” steps that any trader can follow, notes Bernie Schaeffer, editor of The Options Advisor.

Here, we explore two simple ideas that should aid anyone’s trading performance. These ideas may not turn you into a superstar trader (actually, they probably won’t), but the concepts underlying these suggestions should make anyone a better trader.

Keep a trading journal. While it may seem almost juvenile, keeping a “trading diary” can be an invaluable resource. It’s simple to keep a daily chronicle of your actions that reflect why you entered and exited trades.

Document your daily thoughts about open positions and the markets in general. This is the data that you’ll eventually comb through to look for patterns.

When trading is not going well, your journal is where to vent. When trades are going in your favor, this is where you can gloat. It will also provide insight into your mental state, which you can then correlate with performance. You would be surprised how much you can learn if you put an honest effort into a journal.

Perform regular postmortem analysis. Successful traders learn from their past trades. Past mistakes contain a wealth of information, yet many do not take advantage of this resource because of the emotional pain associated with losing trades.

Emotions also affect the analysis on the winning side by making traders euphoric, thus hindering an examination of what really happened.

Set a regular schedule for postmortems (monthly or quarterly) that will cover trades occurring in that time frame, and allow a couple of weeks after the last position is closed. The goal is an objective analysis, and the sting of a recent loser may cloud your view.

The postmortem process can range from simple to complex. Some traders are satisfied with simply examining their trades to identify common traits of winners and losers.

Others break their trades down in various ways. The end result is to have a better feel for what winning trades look like (so you can find more of them) and what losing trades look like (so you can avoid them).

A truly successful trader needs to analyze both winners and losers with a level head. The idea is simple. Group your trades by what they have in common. This requires the ability to remember what happened with each trade, which is why a trading journal is an invaluable tool in this process.

A straightforward approach is to look at the common factors underlying large losing trades and filter these out of your future trading. The same study should be done on your winning trades - find common success factors to apply to future trades.

Your analysis should focus primarily on entry, exit, and position management. Some standard statistics to collect include size of the average win and loss, winning percentage, winning percentage multiplied by the average win/average loss ratio, factors driving the winning and losing trades, and the relative usefulness of certain indicators.

Some find it helpful to break down trades by the day of the week and the time of day they were initiated, in order to identify weak areas and trade away from them while finding strong areas to focus on. Look for your edge and adopt rules to help you stick to your methodology.

The importance of postmortem analysis is to help you learn from your mistakes. Use your analysis to build a framework of rules for your trading that should be customized to your style and methodology. The end result is to keep your head in the game and make you an overall more efficient and successful trader.

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