This post is going to be on how to analyze your own trading patterns to better improve your overall success in the market. For me what I have found to work best is to do an analysis of each trade from as objective of a viewpoint as you are able to have. Try to review it as if you were submitting it to a Hedge fund saying look how great my recent trade was, what do you experts think of that!?
One thing this has helped me do is improve my timing for market exposure. What I mean by this is, often times I will be studying charts for hours, during market hours and after, then suddenly I stumble upon what seems to be a surefire thing, I'm talking a trade so good it might as well be gold. The crazy thing is that 99% of the time on these setups I am spot on with my analysis and predictions. Yet somehow I only seem to be capitalizing on 10% or less of the projected gains... So I knew something about my execution had to be to blame and not my research and analysis. And at the end of the day execution is what truly matters the most, anyone can make a smart pick, but only the best executions will deliver the rewards.
So taking my own advice I decided to write a review on all my recent trades and determine if there were any similarities among them that would clue me in to my failure. Low and behold I discovered an interesting pattern. I found myself taking my profits very early on, doubting the possibility that I would as right as I was, and it was better to take safe profits then to get greedy. Sounds like decent advice right? Well the problem was two fold, on the one hand I was repeatedly short changing myself on the profits, as the pattern typically continued either to or beyond my original price target, and secondly I would then feel like I short changed myself and try to chase the pattern at lower/higher levels than my original entry and often times get stopped out and end up giving back a significant portion of my gains. For example, I would short-sell a crude oil futures contract at 46.00 expecting the price to drop to 45.00, netting a 1k profit. Once the trade was working, I would cover for a profit of say 200.00 or 45.80, then the trade would keep going lower, hit the 45 level where I originally anticipated, then 44.90, then 44.80, and I would say man I knew I should have stayed short, what the hell is wrong with me, a measly 200 bucks when it could have been over a grand! In classic fashion it seemed, I would short it at 44.80 expecting the downtrend to continue when all of sudden it would bounce, next thing you know its 44.90, 44.95, 45.05, and I would frustratingly cover and be left with a net loss of 50 bucks instead of a gain of 1k, or even 200.
My key takeaway from this was to have patience, but also to let the winners run. Additionally I realized that trading with emotion (frustration of missed of opportunity) is never the answer, and you are always better off sticking to a solid game plan!
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