After you finish reviewing the open trades, you then should go over the
trades you closed out during the day. This is where the real learning begins.
Again, you can do this in any order you like, but I like to go over all my
losers first. I want to learn what I did wrong or right and reviewing is the
best way to do this. The first thing you want to do is to make sure you had
and stuck to a plan for the trades you made.
As you go over every trade ask yourself:
- Why did I make this trade?
- Did I have an entry plan when I got in?
- Did I have an exit plan for the trade?
- Did I followmy plan?
- What did I do differently and why didn’t I follow that plan?
Having and following a plan is so important in being a winning trader.
It is one thing you really need to keep on top of all the time. If you have
a plan and have exit strategies in that plan and you consistently ignored
them, then it’s useless having a plan. You may need someone slapping you
in the back of the head every now and then saying, “Hey stupid, what are you doing? Follow your plan.” If you’ve ever watched the old Pink Panther
movies, you’ll remember Cato, Inspector Clouseau’s martial arts expert
manservant. Cato would constantly jump out of closets and sneakattack
Clouseau to keep his defensive skills and awareness sharp. Well,
maybe we all need to hire a Cato to keep us on our toes and in line every
time we deviate from our plan. It may hurt a little at first, but soon you’ll be
able to stick to your plan much better.
If you didn’t follow your plan, ask yourself why not and what you
should do differently next time to help you follow it. Find out why you
put on every trade, and why you got out of them. If you are diligent about
sticking to a plan, then you don’t have much work to do here, but always
review to make sure you stick to your guns.
The Good Losers
Some losing trades are good trading decisions that didn’t work out and if
you got out with a small loss when you were supposed to, I don’t consider
it a bad trade. A bad trade is when you let it get away or make a stupid, unplanned
trade. Being able to take a good losing trade is the most important
trade of all and this is a behavior I want to reinforce. The reason I think
they are the most important trades of all is that your money is made as a
total of all your trades—winners and losers. You will have losing trades,
and you cannot get around that no matter how good you think you are. But
if you are able to limit losses to a manageable amount and avoid the huge
losses, your net profits will soar and you will be a better trader. I am more
proud of getting out of something with a small loss that would have turned
out to be worse, than I am about having a winning trade. Everyone can get
lucky and make a great winning trade here and there, but only good traders
know how to get out at the right time on the losing side. Even though I may
have lost money on a trade it is a good trade if I did the right thing. When
I review these trades I look to remember what I did to make me get out
quickly so that if I see that situation again I hope to act correctly the next
time as well.
Ones That Got Away
Next you can go over the ones that you just let go. These trades usually fall
into two categories, either you overstayed your welcome and gave back
too much on a winner, or you let a loser go and froze up as you watched it
disintegrate. Either way they are going to really affect your P&L statement.
It only takes one bad trade to wipe you out, even after 10 winners in a row,
so try as hard as possible to not let it happen. You have got to learn to stick
to your exit plans and constantly reviewing this will definitely help.
Don’t be satisfied that you made money on a trade. If you had a 50-
point winner that you turned into a 3-point winner, you screwed up that
trade and gave back your money. At the end of the day, week, month, or
year it’s a total of all your trades that determines how you did, so don’t take
it too lightly if you take a small winner that was once a big one. You lost
that 47 points, that was your money to be had. Find out why.
If I let a trade get really bad, I try to see why I did so, so I don’t do it
again in the future. As you look over the trade, look for the spot you should
have gotten out and try to figure out why you didn’t. It could be because
you had no exit strategy or because you failed to follow one if you did, or
because you got greedy and tried to get more than you could out of a trade.
Or did you freeze up and hope a loser would come back? There are many
reasons you could let a trade get beyond the point where you were suppose
to get out. Figure out why you did so and work on not doing it again. These
are the trades you need to work on the most on because they will draw
down your account faster than the good trades will add to it.
The Good Winners
The last thing I review is my good winning trades and again I’ll try to learn
from them. Good winners are the trades you did everything right on and
made some decent money with. Don’t just look at it and say “good trade”
and move on. Really delve into it. Ask yourself, “Why was it a good trade
and what did I do right?” Did you just get lucky or did you really do something
right. If you did something right, then make sure you keep doing it.
By studying trades you may find that every time you make a trade with a
certain setup it works great, but if a certain variable was changed a little it
doesn’t work as well. Only thorough reviewing will tell you things like this.
If you are a person who has trouble following a game plan, and odds
are you are or you wouldn’t have bought this book, keep track of how you
did on trades where you followed a plan, had an entry point, and came up
with a predetermined exit level. And then keep track of those trades you
put on with little preparation. Next, compare them to see how they do.
Hopefully you will see a big discrepancy and realize that you need to have
and follow a strategy/plan when you trade if you really want to succeed.
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