Comment on Mr Consistent returning incredible returns

Madan commented on 08 Jan 2014, 02:32 PM


This post is going to be long as it is a very important topic. Bear with me for a moment.

First of all, most of the newbie traders do not journal their trades..there is a reson for that behavior. If we keep a journal, then we will be forced to take responsibilities for our actions in trading rather than blaming the market, blaming others(eg: market makers, software glitches), wife, neighbor’s dog and whatever 🙂

Records keep us honest. John (author of ‘mastering the trade’) used to tell me that “your equity curve never lies..what went right/wrong in equity curve can be analysed only by journaling the trades”

Personally, i have an excel file for journaling my trades and i also have done some VBA coding to incorporate certain functionalities in it. I backup my trading journal every week as it is my whole life of trading in a single file..i take utmost care to not lose it.

Key things in a trading journal:

1.It should have observations about you and your trading and about the markets themselves. I’ve found that trader journals usually are skewed toward self-analysis and include little in the way of market observation. When I began as a trader, I printed out intraday charts of each day’s action and wrote comments on these, pointing out the patterns that I wanted to watch for in the future(like what Alexander elder of Trading for a living suggests) After some time, this identification of pattern becomes automatic and thats how i identified the visual patterns that work for me.

2.Observations about your best trades must be included.- Many traders use the journal as a means of self-criticism, and they only journal when they’re having problems in the market. Additionally, it should also tell your best trades so that you can focus on them more.

3.Journal should outline specific steps for improvement. It is not enough to write vague generalities, such as “I need to hold my winners longer” or “I need to stick with my discipline”. Identifying specific steps you will take to hold winners (proper setting of profit targets(if any), self-control strategies, etc.) or maintain discipline (risk management, taking breaks, etc.) makes the journal a game plan for the next day/week/month. Such review is an essential step in the kind of continuous improvement that marks winners across all disciplines.

4. Number of long and short trades – Some people are so smooth in taking short trades butt they have hard time taking longs. This is a real problem for lot of newbies.

5. Number of winning and losing trades

6. Time holding trades

7. Time holding losing trades versus winners – It is very hard to make money over time by holding losers. Eventually, the size of the losers becomes greater than the winners so that even a trader who has more winning trades than losers can end up in the red.

8. Profit/Loss broken down by long and short trades and broken down by market condition. This is particularly useful for discretionary traders. It tells them if they trade ranges better than breakout movements; If a trader’s performance is significantly worse in one mode than another, then its time to start examining their trading for needed improvements.

9. It should have ‘entry note’, ‘exit notes’ and ‘what would i do differently’ columns for every trade taken.

10. Drawdown percentage – to identify the drawdown and see if it matches with the system’s expectations

11. It should have provision to subtract the commission+other stuff we pay irrespective of winner or loser.

12. A nice equity curve graph is a must.

Hope it helps.

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