Traders Roundtable: the fifth P of successful trading is Performance

A lot of beginning traders are under the mistaken assumption that if they have a back tested system, good preparation, and a relaxed state of mind that they have an almost certainty of being successful.

If only it were that easy. All the preparation and the world does not guarantee effective performance. We still have to get in the water and start swimming with sharks. Your judgment, self-discipline and stress management techniques will all be tested on a regular basis once you begin trading.

There won’t always be enough time to double check all your rules, so sometimes you’re going to have to use your best judgment when the unexpected occurs.

This is the main reason why actual performance of traders varies from the statistics of mechanically back testing systems.

By measuring the difference between your performance and that of a theoretically mechanical system you can determine what affect your judgment is having upon your performance. You could call this the trader quality number and use it as the basis for judging your skill improvement.

In order to judge the effectiveness of your performance you must keep good records, and set aside time at the end of the day, week, month and quarter in order to compare your actual performance against your benchmarks.

These comparisons allow you to determine if you’re making progress in your skill development is a traitor.

Make sure that you take into account the market condition under which her performance is achieved, so that you can understand the markets influence on your outcomes. You could be a good trader with a good system but using it in the wrong market condition in your performance will suffer. Only your strategic judgment of using an inappropriate system would be bad, while everything else could be right on time. By fixing that one error in judgment, you would make a dramatic performance improvement.

you must group your performance numbers into Ben’s based on the type of strategy that you’re implying so that you can determine which system works best for you.

You should be looking at measurable concepts like risk to reward ratios, percent successful trades, size of the average winner and loser, size of the worst loss, size of the biggest gain, standard deviation of your returns. You should be putting your are multiple distributions and with frequency histogram to examine the variation of your data set.

Analysis of performance is every bit as important as back testing your next strategy, so make sure that you are faithful to your trading Journal and your professional discipline.

Good trading!