Keeping Score

Every good trader will tell you that keeping a trading journal is as important as the shirt on your back, if not more important. But what some newbies fail to realize is that’s just the beginning. Keeping track of your trading performance is much more than just looking at the profit and loss statement that you see at the bottom of the “account” tab on your screen and saying, “Okay, I’m trading well.” It also means looking at the nitty-gritty details to know how you are trading over time by tracking your improvement and development as a trader.

As I’ve said in the past, you should always treat your trading like a business. After all, money – YOUR hard earned money – is on the line. Just like any business owner, you’re not only concerned about how much profits you’re making, but also exactly how you’re making it and what you can do to improve to make even more money.

Take for example a restaurant. A good restaurant manager wants to determine the busiest hours so that he can hire more waiters to handle the workload. He also takes note of which items on the menu are the best-sellers. Analyzing small details this like these can help the manager increase profits by efficiently scheduling his staff, better manage the inventory, and determine how to price a particular dish.

So what are some stats you should take note of?

Since your primary goal as a trader is to protect your capital AT ALL COST, plotting your equity curve is a top priority. Simply put, the equity curve is a graphical representation of the money in your account over a period of time.

What you want to pay attention to is the slope or change in the direction of your curve. Know that it’s not always gonna be a smooth ride up, and you don’t wanna bang your head on the wall for no reason when you see your equity curve dip a little. Compare the changes you see to your past performance and you may see that it’s nothing but noise.

However, if your curve dips more than the usual, you may want to investigate what you’re not doing right and make the necessary adjustments. Meanwhile, if you see the curve rising quickly, then you would want to see what your money-maker is so you’d know what you should keep on doing. Maybe you caught a nice trend, or your news trades have been working out lately.

Another good statistic to keep track of is your win/loss per trade, as this shows whether you’re actually making money on your trades.

Note that even if you made the same amount of moolah for past two weeks, it’s possible that you may not be performing as well this week as you were last week. How? Well, the number of trades you took could have doubled. If this is the case, it means that your average return per trade is actually smaller!

Last on my line up are drawdowns. If you read the School of Pipsology, you’d know that a drawdown is the value lost in an account after a series of consecutive losing trades. A good trader will brace himself for losing streaks and know how much he needs to win in order to get back up in the green.

Not only can you use the data you’ve gathered to gauge your trading performance, but you can use it to discover any psychological trading issues you may have and also to make appropriate changes to your trading style.

Take my friend for example. After one year, he examined his stats and found out that he tends to have a lot of consecutive wins and losses. He is what I’d like to call a “streaker” (No, it has nothing to do with running naked through a public place).

To take advantage of this, I told him that he should increase the percentage that he risked every time he would win and reduce the amount after every loss. Just six months after, his average gain per month almost TRIPLED.

Keeping score is crucial if you want to be a serious trader. The more you know about what you’re doing and how you’re doing it, the easier it is for you to adjust and expand on the things you are good at and address your weaknesses.

2 comments

  1. LarryLivingston

    So to take this down to a practical level, are you talking about basically have an excel spreadsheet. Tracking your entry, stops, risk/reward, profit, loss.. to generate a equity curve. And make strategical decisions according to equity curve, streaks, and over all edge??!?!

    Reply
  2. LarryLivingston

    So to take this down to a practical level, are you talking about basically have an excel spreadsheet. Tracking your entry, stops, risk/reward, profit, loss.. to generate a equity curve. And make strategical decisions according to equity curve, streaks, and over all edge??!?!

    Reply

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