Trading Discipline - Self Review - Are you upto it? ...

We hear so often that discipline is one of the most important success factors in trading. Now there are two types of disciplines involved here - one is discipline in execution and the other one is discipline in planning and tracking trading performance.

It is obvious that the second type of discipline is far easier than the first one. Lets face it, if you do not have the discipline to track your performance it is hardly likely that you will have to discipline to trade without emotion. In fact the reverse it also somewhat true: If you track yourself with discipline you are more likely to trade with discipline.

What will demonstrate that your are disciplined in tracking and reviewing your own performance? Try to answer the following questions:

• How many trades did you execute in July 2009?
• What is the percentage of winning trade?
• What is the average profit for winning trades?
• What is the average loss for the losers?
• What is your expectancy value?

It is critical for your success that you are able to answer these in less than a minute. Which means you need to collect the data and maintain it without fuss. By the way, if you do not know what the expectancy value is, it is defined as follows:

expectancy = (average profit per winning trade) x (winning trade percentage) - (average loss per losing trade) x (losing trade percentage)

For example, if your winning percentage is 60% with average profit 10 and average loss 16, your expectancy = 10 x 0.6 - 16 x 0.4 = -.4. This means that on the average you are losing money per trade, and unless something is done to turn the above number +ve, you will go out of business.

On the other hand, suppose you winning percentage is 40% with average profit 30 and average loss 10, your expectancy = 30 x 0.4 - 10 x 0.6 = +6. Which means that on the average you are making money per trade.

Why do we shy away from keeping these records? It is always hard to look yourself in the mirror especially if the mirror says you are losing money. But it is even more important to keep these record in case you are losing money; how else will you change a loss making strategy
into a profit making strategy?

In my next posting, I shall walk the talk and share with you a template I keep and my July numbers.

Good luck and please keep a record of your trades.


If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

Like this post? You can receive it free by subscribing. Just click on this link

Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading