Smart Traders Review Their Trades

As we move closer to the end of another year, you will probably see plenty of “year in review” pieces in the media. Consider doing the same as a trader. This is a great way to gauge how you are developing as a trader. A lot of traders will concentrate on their profit and loss statement, but this can be deceiving. Why? Many good trades lose money and a lot of bad trades make money. Your goal as a trader is to follow your trading plan and take the best trades that make sense to you with the hope of putting the odds on your side for success. With the end of the year fast approaching, there is no better time to start than now. 

Record Your Trades

The first thing a trader needs to do is screen capture the trade at the moment of entry. This includes the stock chart and option chain if you trade options. If the trade is in effect for several days, screen shots can be taken periodically to help you understand what is happening on the charts and to the options. Once the trade is exited, screen shots should be taken again to compare the start and end of the trade. Lastly, depending on the strategy, screen shots can be taken after the trade was exited to help you analyze what could have been…good or bad.


Now that you have the concrete evidence of your trading it's time to look at the damage or lack thereof. Do this part after the close of the market so your full attention will be on the review process. Label the chart and option chain with what strategy was used. Where did your plan call for entry, stop and target? Then where did you actually enter and exit? Were there any discrepancies? If there were, you need to find out why. If the trade was stopped out but you followed your plan, was it just part of the odds or is there something you can do to improve the odds for next time?

Common Plan Violations

This is where you try to destroy the trading demons that keep you from being the trader you know you can be. Was the entry valid? Did you risk more than you wanted to? Did you remember to check implied volatility before the trade was entered? It really doesn't matter what the violation was, it just needs to be recognized and taken into account for next time. Once a trader has recognized and corrected his or her errors, trading can become a whole lot easier.

Real Eye-Opener

Another option (so to speak) that can prove to a trader the importance of a trading plan is to simply put a contingent order on the trade. Have two orders, one for profit and one for loss, and don’t do anything until one is triggered. The hardest thing to do is to not manage the trade and let the trade take its course. In essence, you now have a trading plan and odds are this is a better approach than managing the trade without a plan or letting your emotions do it for you. It might surprise traders to find out how much better they do using this strategy than what they have been doing in the past.

Trading Journal

The last part of this review process is to keep a trading journal. This is where you will keep your statistical trading records. Review every trade and be your toughest critic. Work to eliminate your most common mistake the next day, week or month, whatever it may be. Set a goal for yourself such as having five consecutive option trades without committing that same mistake. When you have accomplished that, you are a step closer to becoming the trader you know you can be.
The key to becoming successful and growing as a trader is to learn to acknowledge your winners, but cherish and learn from your losses because that is what will make you profitable in the end. You will absolutely learn more from your losses than from your winners. Enjoy the holidays!

John Kmiecik, Market Taker Mentoring

Trader Education