Recording & Measuring Your Trading
Reflection of trading – This will allow you go over trades without the pressure of the clock and the markets and provide vital feedback for improvement. This step in a trading plan is so often overlooked. Feedback gained from a trading diary will unlock the secret to why your trading is failing or succeeding. Take for example my own experience. When monitoring a trading strategy I was trying to implement I found that my data said I was actually taking profits on 7 out of 10 trades but what I discovered was my losses on those three trades were far greater than that of my profits. Now have the knowledge of where I went wrong I was able to tighten my stops to make sure that the winning trades now outweighed the losing trades and turned an unprofitable strategy into a profitable strategy! Trading diaries will help you with this. In your trading diary you should have all the data necessary to help manage your trading. In a following CFD tutorial I will cover a trading diary in detail.
Using the profitability ratio to find winning strategies – This will provide you with a means to decide whether you should stay with a particular strategy or not. Again similar to the above example I used a profitability ratio to help you decide whether or not to keep a strategy.
The Importance of Feedback
Businesses are constantly changing as a result of feedback – Business will measure results through management and financial reports they will look to address weaknesses or strengths within the business to improve profitability. As I have always harped on about your trading should be approached in a similar fashion to a business. In this way you should analyse your trading the way a business analysis the success of a product or service. If we take a look at the Feedback/Business Development Process we can analyse the process business use to ensure profitability.
The same applies for trading – Put aside the rigid structure and try to understand the process of dissecting how you trade in order to improve your profitability as a trader.