How to Judge Your Trading-Day Success

07/25/2012 8:00 am EST


Losses are a fact of trading life, so don't throw away a strategy because you lose a couple of times in a row, writes the staff at

When I speak with new traders, I sometimes think to myself “I remember those days.” Believe me, it is not wishing for the past, but it is about relating to many of the issues they face. To put it bluntly, you are not facing any different challenge than many traders face.

To be fair, I did approach the beginning years of trading a little differently than most. I never got hung up on the numerous forums, indicator hell, $37 e-books, or the humorous “trading robots.” I was always aware that if it were that easy, the failure rate would not be as high.

At the end of the day, trades are made by humans. Even the algorithmic trades had to be programmed by a human. I realized that generally, my failings were my own.

During my communications with new traders, many times they judge performance by a handful of trades. Not their performance, but that of the style they are trading.

Losses can be hard to take. So much so that many will put on a trade, lose, and then kick themselves for taking a losing trade. (Interesting enough, a winning trade gets them a pat on the back). In most cases, a few loses have the trader tossing the trading style into the waste bin and off they go for something new.

Bad idea.

The first thing a new trader must do is look at the big picture. Look at a basket of trades as opposed to singular trades. You must remember that wins and losses can occur in streams or staggered.

Many traders look at each trade and decide whether it was a good one or a bad one to take. This type of logical and analytical approach is the wrong one. There is another approach that will lead you in the right direction.

Evaluate trades on execution, not results. What this means is to not put all your concern with the results. Instead, focus on the quality of your decision at the time you placed that trade.

Here is a trading method that has you taking long positions off support on the first touch in an uptrend. In fact, the candle piercing support adds more intensity to your trading because moves can be much bigger when the stops below support are cleared out. Your stop is just below the low of the candle that pierces support. Your target is resistance.

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It’s a perfect setup for your method, and you take the trade when price breaks the red candle. Trade gets some juice, then collapses and takes you out.

As usual, you evaluate the trade on the result. This is your second loss, and even though it is a time-tested method, you decide it a “scam” and move on.

Here is the flip side to that. You look at the trade on your decision in the moment. You execute perfectly. Everything that needed to be in place to take a trade was there. You accept that losses are a part of trading. You look at your stats or you simply just know that overall, things work out and you are making money. You decide to only make a decision on the whole...not the singular trades that make up the whole.

Dealing with outcome bias is a tough one. It will take a ton of mental energy to overcome. Doing so will save you a ton of wasted time in jumping from strategy to strategy and dumping a potentially lucrative one. This applies to winning trades as well. The win is not as important as the quality of your decision in taking the trade.

That is how you judge your daily success as a trader—through your execution of the strategy and the results of a basket of trades. Anything else is the sign of a rookie.

This article was written by the staff at

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