PERFORMANCE

Practice the philosophy of continuous improvement. Get a little better every day. Increase your performance.

05

SCHEDULE A REGULAR PERFORMANCE REVIEW

Collecting data is all fine and good. But it’s only useful when studied.

Regular reviews serve several purposes:

• It keeps a trader focused on their trading plan
• Compare emotions and perceptions to reality
• Identify potential problems and opportunities Performance reviews should be as structured as possible.

These ensure each session provides optimal value and covers all the necessary elements.

06

USE AN ACCOUNTABILITY PARTNER TO MAINTAIN OBJECTIVITY

We all get tunnel vision from time to time.

Keeping a friend or trading partner on the side can help you maintain objectivity.

If you don’t know anyone that trades, consider joining an online community or group of like-minded traders.

Another great way to keep yourself balanced is with a trading mentor. Mentors provide invaluable insights based on experience. They can help you avoid pitfalls that plagued them early on.

07

TRY AND STUDY IDEAS IN A SIMULATED ACCOUNT FIRST

Never implement a new idea in your real money account without first testing it in a paper (demo) version.

In fact, you shouldn’t begin trading a new idea until you’ve completed one of your scheduled reviews and then rewritten your trading plan. It’s easy to get caught up in a new idea and miss something small and important that could wreck your account.

Think of an algo trader who fat fingers a decimal point and ends up with a position size 100x larger than they intended. Wouldn’t you rather find out about that without risking real money?

08

AVOID ANALYSIS PARALYSIS

Traders can often over think situations or trades, leading to analysis paralysis.

Indecision is especially prevalent when emotions are high, or a trade is failing.

If you start to second guess yourself in the middle of the action, do the following:

• Read your current trading plan and strategy.
• Commit to finishing this trade exactly as prescribed.
• Write down any ideas or questions you have and leave them for your scheduled review.

Later on, when you review your trading journal looking for patterns and opportunities, remember that nothing will ever be perfect or foolproof. At some point, you will need to decide whether to put an idea into action.

It’s ok to trade a strategy you aren’t 100% comfortable with as long as you have and trust a review process.

09

SIMPLIFY INDICATOR USAGE

How many times have you seen a trader’s chart with so many indicators you can’t see the candlesticks beneath it?

Indicators come in two flavours: reactive and proactive.

Reactive indicators look at past price action to tell you what has happened. These include moving averages, Bollinger Bands, and the like.

Proactive indicators attempt to identify turning points before and as they occur. These include oscillators, divergences, stochastics, and the like.

Some traders will break these down further into volatility and support and resistance indicators. Whether you use two or four groups, if you use multiple indicators from one group, ask yourself whether they individually provide value or need to be used together for a strategy to work.

Quite often, traders find they have overlapping indicators that function similarly. Excess indicators not only clog up your screen, but they can also slow down a platform’s performance and gunk up your analysis.

Look for them during your scheduled reviews and consider removing ones you find unnecessary.

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10

MAKE FRIENDS WITH EXPECTED VALUE

Expected value is the amount you forecast to make on average over many trades.

You only need three pieces of information to calculate this metric: win rate, potential profit, and potential loss.

All of this can be derived from your trading journal, substituting average for potential profit and loss. The calculation is as follows:

Expected value = (% chance of winning x potential profit) – (% chance of losing x potential loss)

Note: Your percent chance of losing is 100% minus your percent chance of winning.

An expected value greater than one means you should turn a profit over time.

Less than zero indicates you would lose money.

And zero, you would break even.

Here’s an easy example

Say I give you $1 every time you flip heads on a coin, and you lose $1 every time you flip tails.

Your expected value is $0 since you have a 50/50 shot of either occurrence and your risk and reward are equal.

Now assume that I pay you $1.25 for every time you flip heads, but you lose $1.10 for every loss. Your expected value is as follows: EV = (50% x 1.25) – (50% x 1.10) = $0.075

Trading works the same way.

Say your win rate is 65%. Your trading journal says you average $150 profit for your winners and $200 for your losers.

Your expected value calculates as follows: EV = (65% x $150) – (35% x $200) = $97.50 -$70 = $27.50. So, on average, you should make $27.50 per trade.