How to Hold Yourself Accountable in Your Trading (Part 2)

05/12/2009 12:01 am EST

Focus: STRATEGIES

Timothy Morge

President, MarketGeometry.com

Once each trader has compiled these statistics (listed in Part 1) at the end of each month, they can look for anything that looks odd in the statistics:

  • Did you have an unusually large loss relative to your average loss or average winner? If so, why? If that outlying loser was removed, how does it change your statistics?
  • What caused this unusual loss, and can you change your rules to eliminate the likelihood of this large loss repeating if the same market conditions reoccur?
  • Did you have an unusually large winner relative to your average loss or average winner? If so, why? If that outlying winner was removed, how does it change your statistics?
  • If you had a losing month, can you isolate a type of trade that was particularly costly for you? Or a particular instrument?
  • If your winning percentage was near or above 50 percent and you did not net make money, can you account for the poor win/loss size ratio? Were there any common traits you can find in the losing trades or in a group of losing trades for this month?

Once the trader has answered these questions, they have to be accountable to the shareholders going forward.

  • If you lost money for the month, are there any signs that you have made progress as a trader? Please document these signs of progress.
  • If you lost money for the month and you have read the documented signs of progress cited by you, the trader, is your investment in this business still warranted? Should you continue to fund a losing venture for another month? Should you continue to spend your precious resources (your time) working for this business entity?
  • If you made money for the month, did you make money last month? If the answer is no and you consciously feel you should continue to fund this business venture for another month with both your time and money, begin preparing for next month's trading and keep your position size at its current level.
  • If you made money for the month, did you make money last month? If the answer is yes, at what point should you consider using a sizing algorithm to carefully increase the size of the positions you are trading as your account grows in size?

Does this sound like a tremendous amount of paperwork and hard work looking at numbers? You bet it is! Too many traders think trading is simply finding something they like to buy or sell and then putting on a position. The truth is, professional traders who consistently make money know the statistics behind their past trades intimately. They know that money management and position sizing (both increasing position sizes and decreasing sizes) at the correct time can make a tremendous difference in the long-term growth of their trading account—and their incomes!

Now let me show you one of the reasons I love to help others become better traders! Here is a shot from one of my newer one-on-one mentoring student's month-end statistics…

More tomorrow in Part 3. Part 1 | Part 3

Timothy Morge
"Master your tools, Master Yourself."®

timothymorge@marketgeometry.com
www.marketgeometry.com
www.medianline.com

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