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.
Don’t forget that 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 a restaurant, for example. 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 the trading stats you should take note of?
1. Reward-to-Risk Ratio
As its name implies, the reward-to-risk ratio or R:R compares how much you stand to gain on a trade to how much you’re putting on the line.Ideal reward-to-risk ratios can go from 1:1 to 2:1 or as much as 10:1, depending on the trader and the type of setups being taken.
The bottom line is that you have to ensure that your potential reward is at the very least equal to what you’re risking on that trade for it to be worth taking.
That way, you can be able to erase two or three losses with a single win and not the other way around.
2. Win Percentage
Another good statistic to keep track of is your win percentage, as this shows whether you’re actually making playing the odds in your favor and catching more wins than losses.
Aiming for a win percentage above 50% could remind you to take high-probability forex setups and could prevent you from taking too many so-so trades that can drag this stat down.
Of course it also helps to make sure that your wins are greater than your losses in order to have positive expectancy.
Even if you score more winning trades than losing ones, if you make only 0.05% on each win and give up a full 1% of your account on each loss, then a high win percentage wouldn’t mean much!
3. Trading Mistakes
Last on my line up are the trading mistakes you’ve made.
Yep, I know, it’s not that easy to admit that you’ve made some errors or deviated from your trade plan at times, but keeping track of these mistakes should help you become a more disciplined trader.
Remember that a winning trade can either be a good or bad one, depending on how you’ve played it. If you ended up winning a trade by closing way too early instead of sticking to the plan, this could be counted as a mistake if you’ve ended up leaving profits on the table when price eventually hit your target.
Similarly, a losing trade can still count as a good one if you’ve practiced proper risk management and cut your losses when price action turned against you.
Missing a valid forex trade setup that fits your plan could also be chalked up as a mistake if you’ve hesitated or if you were feeling distracted then. If you’re able to track how many could’ve-been-profitable trades you’ve missed, then you could use this as a reminder to be more focused or more confident next time.Recording how you make your trading decisions can give you better insights on how you react to market uncertainties and what kind of steps you can take to handle your emotions better.
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.
For instance, if you’ve realized that you’ve made majority of your trading mistakes while trading news releases, you could consider making adjustments to your strategy to come up with a plan that lets you ride the follow-through instead of the initial volatile reaction to a report.
Or if you’ve noticed that most of your losses come from trading breakouts, then you could remind yourself to risk a smaller portion of your account for these particular setups or to focus more on trend or range trades.
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.