NOT KEEPING RECORDS OF YOUR TRADING

Suppose you told me that you owned your own business but had absolutely no records of what your inventory was, what your average ticket sale was, how long your customer stays in your store, what the average wholesale price of your best selling items were, etc.?  People, me included, would think you were Looney-tunes.  You can’t run a business without good records. Trading is a business.  You need to keep trading records. You need to keep accurate records of your trading because over time you are going to learn that certain things work and other things don’t.

Sooner or later you will come to the conclusion that your trading system or computer analysis is only a small part of what it means to be a successful trader.  The rest is how you personally participate and if you don’t have a record of how you participate; you can’t learn what behaviour will work for you and what behaviour doesn’t help you.  The purpose of keeping good trading records is to help document what your personal winning behaviour is and what your losing behaviour is.  Your goal with these records is to discover your trading strengths and weaknesses.

Once you have a handle on what your trading strengths and weaknesses are you can now put guidelines and/or rules in place to maximize your trading strengths and minimize the effect of your trading weaknesses.  You don’t have to do it by much in order to tip the odds squarely in your favour and put you on the high side of the Probability of Ruin Matrix.

Let me tell you a story of how keeping records helped me turn the corner in my personal trading.  As a young trader, I would often “shoot from the hip” I would make a snap judgment based on my point of view and make a trade instantly.  Because I had no real rules for getting in or out, I had my share of “jumping the gun” on trades that eventually would have worked from that side.  Once I learned to keep good records and review them I discovered that I often was correct on my initial observation about net price action, but I was usually a day or two early.  I was often stopped-out for a loss just before the market would turn.  After this happened several times, I would simply execute again immediately to get back in; resulting in another small loss. This would happen six or seven times (making mistake # 6 “Overtrading”).

Usually the market went a significant distance; then the market would turn.  I would hold the winner but I would need to overcome a major loss to my equity before the trade had a net gain. On a 200 point move in Japanese Yen (for example) I would net maybe 30-40 points because I had a 150 point deficit to overcome first.

After reviewing my notes, my observations, and my trading history, I decided that my skill at finding a trade was not the issue.  My system worked fairly well.  My timing was usually a day or two early.  I made a new rule for myself: “If I have three losses in a row, I cannot trade for 24 hours”.  If my first three attempts to buy what I felt was a sell-off were losers, usually I would get another chance right in the same area or better within a day or so.  By disciplining my trading in this manner, I would save myself three or four more losers.  Nothing really changed in my trade selection or my analysis but changing my behaviour allowed me to get into the market better and stay there better.  I might have never made that connection if I hadn’t reviewed my records and changed how I operated my business. That one little change made a huge difference in my results.

HOW TO MAKE THIS MISTAKE WORSE: Don’t keep any records of any kind, never review your trades, check your account balance only rarely instead of after every trade, do trades without thinking them through, ignore advice from professionals, trade without a stop-loss order and don’t write anything down.

SOLUTION: Get a three-ring binder and fill it with lined paper. Write everything you do down. Calculate your results daily and make time every week to review your notes on your trades. Join a support group of other traders and have them hold you accountable for record keeping. Now, I want to give you the number one mistake FOREX traders make. This is without a doubt the single biggest mistake you can make and you only need to make it once to end up broke. If you made every other mistake in this book but never made this one, you would still have a fighting chance for ultimate success. But if you make this mistake, you might as well take a $10,000 stack of $100 bills out to the backyard, tear them into tiny little shreds and start a bonfire with them. There is no faster way to losing all your money than making this mistake.

Tags: Forex, forex strategies, forex trading

This entry was posted on November 4, 2011 at 5:59 am and is filed under Trades. You can follow any responses to this entry through the RSS 2.0 feed.