It is a good idea to periodically review and evaluate one’s trading skills. One often hears the old saw that “even a broken clock shows the correct time twice a day”. This is a reference to a trader who has inconsistent trading results. What are the underlying reasons for that and what, if anything, can be done about them?
An inconsistent trading record probably reveals a trader’s strengths in some areas and weakness in others. Focusing efforts on improving those skills at which one is already good is missing the boat because, consciously or not, one is not putting effort into improving or eliminating those areas that cause poor trades.
Consider another old saw: “right church, wrong pew”. A trader picks the right pair and, in hindsight, the right direction yet ends up with a losing trade anyway. Is it due to a lack of emotional control to manage risk effectively? Perhaps but more importantly an unconscious effort to try to become a better instrument and direction picker misplaces the effort because it tries to improve that which does not need improvement while ignoring that which does. Bottom line is an inability to produce a consistent profit streak.
Let’s look at some key aspects:
Decision to Enter
To assess this skill one needs not worry about the ultimate profitability: The question is if the instrument went in the expected direction. A directional consistency record is an important skill. What is a good yardstick? Better than 1 out of every 2 trade picks + showing consistent correct directional picks more than 66% of the time qualifies as “good”.
Managing Risk
Risk management is about how much one loses when wrong versus how much one makes when right and about how often one is right. Keeping the ratio of loss vs. gain consistent is an important skill to cultivate.
Decision to Exit
Closed trades that consistently, in hindsight, continue to go further – also known as leaving money on the table – are trade exit decisions that may need some emotional control examination attention.
Trade Opportunities Lost
Being glued to a monitor all day does not guarantee not missing trading opportunities. Distractions or lack focus are good causes. The difference between a position trader and a day trader is in matching one’s trade style to one’s willingness or time commitment ability to stay close to markets.
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Each one of the above trading skills is a topic in its own right. In the next edition I will take a closer look at but one technique for monitoring the market for Trade Opportunities.
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