I hope you escaped the worst of the bad weather. I can still see the last remnants of the snowman I made last Monday.
The bad weather hasn’t been a bad thing, it’s forced me to knuckle down and do review of my trading. Like doing my tax return, it’s one of those things I know I should do, but put off for some time.
So on Sunday while there was drizzle outside I sat down and went through my trading record. I actually found it a very useful process.
The trouble with testing new strategies while continuing to trade existing methods is that my trading activities can become rather distracted. Trading is in some ways, an expression of creative freedom. There are so many ways you could trade that you are tempted to try everything out.
This of course isn’t good for the bottom line.
Although sometimes distracted, thankfully, I’ve been keeping good records of my trading activities. Most of these were on a spreadsheet, while some were done on old-fashioned pen and paper.
Keeping a trading record is vital because your live or demo account won’t be telling you the whole story, especially if you are testing different strategies like I regularly do.
Many professional traders that I speak to talk about treating it like a business. All successful businesses analyse their activity to see if they can spot patterns that could save or make them money. It’s the same with trading.
What should you put in your trading record
It’s advantageous to be able to record things in a spreadsheet because then you can perform some instant analysis on the numbers, but paper records will still do nicely. Any records are better than no records.
I personally like to record my trades on paper throughout the day, then transfer my daily activity to a spreadsheet in the evening. It’s just my preference, but I find it less distracting doing it this way.
As a minimum I suggest you record the following (you might want to keep different records for different systems):
Purchase date
Time
Broker/feed (only required if you use different feeds for different markets)
Set up – describe the particular set up.
Note 1 – A note about the market conditions. Was it choppy? Was the trade in the direction of the trend?
Entry point.
Position size
Stop loss.
Risk/reward (potential profit vs potential loss)
Target
Close date
Close time
Profit/loss in points
Profit/loss in £
Note 2 – A more subjective note about what you were doing when the trade was placed. Were you relaxed or stressed? Were you distracted or focused? Were you confident or doubtful about the trades progress?
I went through my trading records and spotted some interesting patterns.
My returns from swing trading US stocks where much greater when those trades were in tune with the wider market action. These stocks might have a great setup, but more money was to be made in waiting for the wider market to agree. The advantage of this is that it cuts down the amount of trades and focuses my attention on the wider market (S&P 500 and Nasdaq 100).
For forex swing trades I found that I made a number of losses when I came back from a holiday or a weekend away and jumped back into the market without getting a feel for things. Mondays were my worst day. Not because conditions were bad, but because I was less focused and less patient.
My short-term forex day trade records showed that I made more money when I let trades run and stopped micro managing each trade.
Even if you follow a system with specific rules, it’s worth keeping a trading diary, even just to record your mental state at the time of placing the trade. You might find out when you are more likely to break the rules or when you are more likely to chase trades.
System round up
FAP Turbo, I need your help! – I’m hoping to do a review of http://www.fapturbo.com in the next edition of What Really Profits. The problem is that the results with this program vary wildly depending on the broker you are using. Two people trading the same system with different brokers tend to get very different results. So I’d be really grateful if you could get in touch and let me know of your results and the broker you used.
Quite a number of service providers have sent over their stuff for reviewing and I’ve contacted quite a few more to do some due diligence on. Here’s a quick summary:
http://www.forexjackal.com is now sending over his daily selections.
Ervent of http://www.ervent.net has agreed to send over his forex probability meter and heart of forex meta trader add ons. These aren’t systems, but could be a useful filter or indicator to add to your trading.
http://www.theoilbiz.com has sent over his EA for me to test. It looks interesting, though I’ve had to delay my test while swapping over to FX pro from Alpari for my Meta Trader data.
Quite a few of you are now testing http://www.marketsmastered.com. Early days, but I’ll collate feedback and get back to you.
There’s a trio of education services that look very promising. I’ve approached them all for review access. No response yet, but I’ll keep trying. These are; http://www.jpjtrading.com, http://www.thestrategylab.com
and http://www.theforextruth.com.
I’m also continuing to look at Forex Rush with at the help of a MM reader who’s done some useful coding for me.
That’s quite enough to keep me busy. I’ll try to pass on as much as I can to the testing team.
If you have feedback on anything you’ve been using recently (or in the past), please do pass it on, I’m sure fellow readers would be more than grateful to share your experiences.
Also, if there’s anything that’s caught your eye, get in touch and see what I can do.
Good job I managed to streamline my trading over the weekend!
My trades
Out of the market with my S&P 500 swing trades at the moment. I can’t see a decent edge in either direction. I’ve got my eye on support at 8500 on the emini S&Ps and 12500 on the NQs (Nasdaq futures). With the Obama bailout expected to be announced today, we could see a break out today though.
A really nice trading day on the EUR/USD. Mainly thanks to FX53 I caught most of the move up and the move down over night. I set up a bracket order on the latter as part of my new trading plan and this time it worked out. Time will tell.
My forex swing trades are mostly under water at the moment, but these often take some time to get going.
This week’s hot trading buttons
This week’s highlights include a number of speeches from prominent central bankers including Treasury secretary Geithner, and FOMC chairman Ben Bernanke today. On Wednesday Governor King speaks at the release of the BOE inflation report. ECB president, Trichet is due to speak on Thursday. Aside from this, we also have US retail sales and unemployment claims on Thursday.
Also today, former banking chiefs including Sir Fred Goodwin get a grilling from the treasury select committee. They obviously messed up royally, especially the formerly untouchable Sir Fred. Most of the RBS’ recent record losses were down to the acquisition of ABN Amro and a lion’s share of the UK government’s bail has gone into propping up sub prime positions taken on by ABN before the takeover. As bad deals go, this has got to be up there as the worst deal in history.
Having said all this, I don’t like all the anti banker sentiment that’s boiling over. Don’t get me wrong, some bankers did some very stupid/greedy things that have directly led to the mess we’re in. These people should be singled out and held to account. However there’s a very complicated web of interconnected factors that led to the current recession, not least the over reliance on unsustainable consumer spending and the housing boom that was allowed to go on for too long. Barry Rithholtz has numerous posts on the real causes of the crisis in the US and UK like this one http://www.ritholtz.com/blog/2009/01/six-ideological-errors-that-led-to-financial-crisis.
I just don’t like it when an angry mob develops. Mobs are stupid and often attack targets blindly even if they are not directly the enemy. Many banks still have profit making divisions and it is these divisions that are being awarded bonuses. The lack of lending is strangling small businesses, but it is in my opinion, partly a function of confused government policy. The government is telling the banks to stabilise their capital positions, while at the same time returning lending to 2007 levels in the midst of a house price collapse and recession. You don’t have to be a genius to see that there’s a conflict here.
Action and investigations needs to specifically target those people and areas at the heart of the crisis, not tar all bankers with the same brush. Take AIG for example, this article http://www.slate.com/id/2210720/?from=rss explains how just 377 employees out of 116,000 were responsible for the dangerous positions that brought down the insurance firm. Incidentally, here’s a great explanation of the stupid decisions that division took using two cows to explain it: http://clusterstock.alleyinsider.com/2009/2/aig-implodes-the-two-cows-version.
If we’re going to figure out what really happened to get us in this mess and more importantly, how we’re going to get out of it and stop it happening again, we need to step away from neanderthal like mob behaviour and get away from cheap political sound bites. As Evan Davies said in a recent TV documentary, regulators need to gain an understanding of new areas such as behavioural economics if we are to avoid such a disaster again.
Somehow, I don’t think the powers that be will find this politically appealing.
I’ll step down from my soap box now.
Trading wisdom
“I rarely think the market is right. I believe non dividend stock aren’t worth much more than baseball cards. They are worth what you can convince someone to pay for it”. Mark Cuban
