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Measuring performance throughout the trading process

Nick Goold

Many traders think: "I made money today!" or "I lost money today!" and then feel good or bad about their performance. On days when they make a profit, they feel relaxed and expect to continue making money. Conversely, when they make a loss, they feel depressed and worry it will continue and they'll never make it back again.

That is quite normal, not only among novice traders but also among more experienced traders.

However, preoccupation with short-term results will harm your self-confidence, and cause you problems in the long run. That's because chasing short-term profits can make you abandon your trading plan and its rules.

Trading performance should not be judged on how well you've performed in a short time, but rather over a long period, at least six months to a year. Otherwise, it's impossible to know if your performance is consistent. If you've been trading for a long time, there will always be good periods and bad periods, and you may have just been making or losing money recently.

So, it's important to always measure performance throughout the trading process, rather than focusing on immediate gains or losses. In other words, you need to look at the trade from the perspective of whether it was successful or not, not whether you made money or not. In this case, 'successful' means that the trade was executed by the trade process within your trading plan and rules. Measuring performance that way will lead naturally to improvements in performance.

When measuring performance throughout the trading process, make sure that you are not depressed by losses, but rather that you have traded on your plan. At this point, try to check with a calm mindset and not be happy or sad about the gains or losses. This way, if you were just lucky and made a profit on a bad (not as planned) trade, you can accept this rationally, and you will be more likely to stick to your trading plan in future.

Once you feel confident, the next step is to analyze how well you have followed your trading plan and rules. For example, if you have been able to follow the rules 80% of the time recently, you can see how this compares to the situation in other periods and see if there has been any improvement.

Keep a detailed record of your trade plan and the percentage of time you followed your rules, and compare your profit and loss situation with that record. This process allows you to discover whether your current trading plan is working well enough and whether it needs to be modified.

If you find it needs improving, you can review and revise the trading plan and rules throughout the trading process.

When you have a clear idea of what needs to be adapted, you will be better motivated and have fewer losing trades.

As you measure your performance throughout the process, over and over again, you should notice gradual improvements in your trading profit.

If you focus on what's most important for consistent trading, it's likely you'll see better results.