Saturday, June 26, 2010

Measuring Trading Success

How do you measure your trading success? That almost sounds like a stupid question, doesn't it? Obviously, overall we measure it by how much we've made or lost. However, we might do well to recognize other measures as we go along. I suggest that approach because I have seen and heard so many traders ride an emotional roller coaster as the markets go up and down. One day there is euphoria and three days later abject panic. Markets and stocks go up and they go down. Traders will have winning trades and they will have losing trades. None of those individual trades necessarily mark whether a trader is an overall success or not. In fact, a losing trade can be a successful trade if the trader has followed a disciplined plan and cut a loss appropriately. Recognizing that there will be times of draw down for even the best trader, how can we measure success as we go along?

As we conduct our trading, we can look back and see that there have been many steps to get us to where we now are. We can look at steps along that path to help us understand how well we might be doing. As a basic example, one of the first steps along the path to trading success was our learning how to use the computer. We may ask ourselves whether we have done that well or whether there may be some additional skill that might make our work easier, faster, and/or better. It seems that any improvement made in the steps along the way might improve the overall success.

We might also measure success by other achievements such as whether we have completed a trading plan, whether we have followed our trading plan, whether we have learned strategies to trade up down or sideways markets, whether we have developed an exit strategy, whether we have a discipline to cut losses, whether we have devoted time to education through reading, DVDs, or seminars, whether we have structured our time to permit regularly attending to the business of trading, and so on.

If we take the time to look back from where we are, we can see the steps that we have taken so far. As we do look at what we have done we can see what we haven't done as well and that may lead us to improve our trading. We may look back and see that we have closed losing positions only after losses have mounted to the point where we felt hopeless. That insight could easily lead us to establishing a more disciplined exit strategy. Instead of waiting for hopeless, we might, instead, decide to use the reversal of some indicator or the break through a moving average as a more disciplined way to cut losses more quickly and more efficiently.

If we are less than satisfied with our success so far in trading, we might look back at the steps we have taken so far to find what could be improved. As we mark each step as a measure of success or, perhaps, not so much success, we can use it to improve from here as we go forward. Success is rarely static and can often be even better than we thought if we are willing to examine how we got where we are with an eye to how we can make changes to get where we want to be.

by Bill Kraft, Editor
Copyright 2010, Makin' Hay, Inc.
All Rights Reserved

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