Finally, one of the most important things that we can tell you about trading is the importance of keeping good records.
Financial records of your investment activity need to be kept, as well as qualitative records that show whether or not you stuck to the plan you had set yourself and how you felt during the trade. By keeping tabs on all these things, you are more easily able to identify the things that add to or take away from your success and you can adjust your trading plan accordingly.
Document Your Plan
First of all, you need to document your plan.
It is absolutely no use having a plan if you have not committed it to writing. You can easily change or bend your plan if it’s not in black and white.
We think that having a plan is so important to your trading success, that we’ve put together another FREE resource for you – our ‘Trading Plan Tune Up’.
You can request your free copy here.
Monitor Your Position
Secondly, you need to keep good trading records. This means you need to be able to clearly track which trades you have taken, how many contracts you bought, how much you paid in brokerage fees and importantly how much profit or loss you made.
It is important that you continue to monitor your position in the market by reviewing share price data on a daily basis to monitor the stops you’ve put in place.
Once the hard work of finding and getting into a trade is done, it is not just sufficient to sit back and completely relax. The ongoing management of your investment requires you to continue watching the trade in relation to your plan.
Learn from the Numbers
A trade should not end when you exit out of your position. You must analyse it and learn from it. This review and self-analysis is an essential part of growing to become a more successful trader. Have you identified a good trade? Which selection criteria were useful and which did not work? How good was your entry? Was the initial stop too far or too close? Why and by how much? Did you move your stop too early or too late? Were your profit protection stops too loose or too tight? Did you recognise the signals to exit a trade? What should you have done differently?
A thorough analysis such as this is the best weapon against emotional trading.
Keep a Trading Diary
It’s a good idea to keep a journal that outlines your position and reasoning before and after the trade. Jot down your main reasons for buying or selling. Write down your plan for entering the trade. Complete this exercise again once you have exited the trade. Write down your reasons for exiting, and list what you did wrong or right and how you felt. Learn from history and profit from experience.
Your trading diary should record all of the details of a trade, including how you made the trading decision, whether you were feeling uncertain, confident, or dispassionate, and indicate the background information of the trade.
By reviewing detailed records of a past trade with the benefit of hindsight you can identify particular aspects that you are doing well or doing badly. These “numbers”, the profit or loss, the % of winners, the average size of a trade are the real results. If you see problems with the numbers, work hard to adjust your trading plan to improve future results.
You have to deal with stress and a huge potential for self doubt. Because trading so often takes profits from being out of step with the crowd, you need a level of self discipline that is not dependent upon the approval of your peers. Private trading is a lonely business that requires strength of conviction and of character. Anybody can open a trading account, but only those who have the right temperament, or who can develop it, will feel comfortable and succeed.
Learn to play it by the numbers – they don’t lie. If you can build up a strength of conviction in your system because you have good information, then you are all the closer to becoming a successful trader.