Tuesday, December 28, 2010

A time to take stock

At the end of each year, the famed speculator Jesse Livermore used to lock himself away in the vault of his bank, with only his essential supplies for the weekend and a briefcase full of papers for company. The papers detailed his trading records and notes for the year. He would then spend a weekend going over his notes reviewing every single trade and trading decision made.

The period between Christmas and the New Year gives me the chance to review my own trading performance for the year, and allows me to investigate more closely any errors that I have made, or potential improvements to my system.

Already I have made some observations on my own performance, together with some ideas that I need to investigate further. Based on my findings so far, I am quietly confident of improving my returns in 2011. My own issues have been as follows:
  • An occasional hesitancy on opening, or a complete rejection, of potential trades;
  • An occasional tendency to enter sub-optimal positions;
  • Poor execution on entering some positions;
  • Missing entry points on potential trades already indentified;
  • A lack of clarity on determining the intial stop placement on a position (I have posted here about this before).
You will notice that of these 5 points, only one relates to the system rules (initial stop placement). The other points all relate to the 'discretionary' elements of a systematic approach, and all can be traced back to myself.

One of the reasons I started this blog, and the trades log with it, was to create a faithful, historical record that is in the public domain. I stand or fall by my trading decisions, and if any errors are made, they are displayed for all to see (no exclusion of poor or unsuccessful trades here!). This 'warts and all' approach has helped my own trading, but as you can see, there is clear room for improvment.

The thing about trading is that, no matter how good a trader you are, you can always find things to improve, be it in your overall philosophy, your specific entry and exit rules, your execution of those rules and/or your risk/money management tactics, and I would recommend any trader to undertake a periodic review of their performance, whatever their basic approach. You may be surprised what you find.


  1. Steve,

    Stumbled across your site whilst on holiday a couple of months back and it prompted me to create a more robust trading log. Previously I had a spreadsheet which detailed profit & loss and not much else.

    Since finding your site I've created one that performs a lot more analysis via data downloaded from IG Index which is then run through pivot tables.

    I also have a free-form note field that lists why the trade succeeded or failed. Some fields I'm looking to incorporate are:

    1) Why did I enter at that price and why
    2) What was my price target and why 
    3)If I had the same trade, what would I do differently 
    4)How was I feeling at the time

    Anyway, thanks for the posts and opening my eyes to creating a proper trading log. It certainly helps having to face the spreadsheet and enter in the information rather than briefly thinking about it and moving on from a losing trade!

    Keep up the posts and have a good 2011!


  2. Hi Ollie,

    Thanks for your comments.

    I'd be interested if you would email me re: downloading your data from IG Index.

    Re: trading logs - You do not specify whether your method is systematic or discretionary. If its appropriate, you may also want to consider adding a field if you find you are not following your rules (be it entries, exits or money management). If you do have a tendency to override a particular rule, you may see a pattern forming if you record it (e.g. Exiting a long position manually, without an exit signal being given, on a weak day in the market).
    If you see a clear pattern forming, on a particular element of your system, it may mean that subconciously you are not compatible with that element, and you may wish to change it.

    All the best for 2011