As trader’s we can never be perfect, without question we will make mistakes through each and every trading day. However, this doesn’t mean that we should stop trying to maximize our potential and strive for greatness. One of the best ways we can assure that we are objectively maximizing our potential is to use a professional trade tracking spreadsheet to compile data and make meaningful changes. There’s only one small issue: most traders don’t track their trades. After all, how can be we learn to improve if we don’t know what we’re doing wrong, and right?!
Keeping track of statistics whether it’s in the NFL, NBA, MLB, motor racing or any other professional sport has become common place, and it extends much further than professional sports. Ever notice when you visit a particular website, perhaps a home improvement website looking for a new hot water heater, and then all of the sudden there are hot water heater advertisements everywhere you go from Facebook to MSN.com and every website in-between. Obviously those corporations are tracking your internet search behavior so they can more effectively market to your spending habits. Although it can be annoying at times, it’s good business. So, if major sports teams, car racing teams and even billion dollar corporations are using statistics to help win football games, car races and even track spending habits more efficiently, then how come more traders don’t take the necessary time to track their own trades each day? There can only be couple reasons for this: either they are too lazy, or they simply do not appreciate the tremendous impact that tracking their trades can have on their trading profitability. If it’s good enough for billion dollar businesses then it’s probably a smart idea to implement it in your own trading.
- Trade Tracking Spreadsheet: Numerical record of all trades. (Winning, Losing, Good, Bad etc.) This includes a detailed list of parameters that are calculated to help the trader better assess their performance.
Naturally, it can be a little bit intimidating for those traders who have never tracked their trades, however it’s not as challenging or time consuming as one might imagine. The first step in the process is to either make or purchase a quality trade tracking spreadsheet. At Live Traders we sell a reasonably priced tracking spreadsheet that compiles a great deal of information in an excel based format. For those that are ‘tech savvy’ you can certainly go about building a tracking sheet on your own. However let me for-warn you that it can be very time consuming to embed the proper formulas and necessary coding to make an effective tracking spreadsheet. Every trader is a little bit different, so it’s usually best to find a tracking sheet that is somewhat customizable to your particular style of trading.
Once you have your new shiny trade tracking spreadsheet, specifically how can it help you improve your trading? The great part about a detailed tracking sheet is that it tracks a tremendous amount of meaningful data, such as: your most profitable day of the week, your least profitable time of the trading day, your efficiency on long vs. short trades, your overall batting average and win/loss ratio as well how long you are in trades and if you are getting the most from those trades that you are in. This is only a small sampling of the literally infinite possibilities when it comes to tracking your trades. I even know some traders who track data on specific symbols, and will formulate a do not trade list (DNT) based upon their results.
For example, you might ‘think’ you are a very good morning trader, however after tracking several months’ worth of trades, the data could suggest otherwise. Now you have a choice to make. You can either stop trading the market open, or you can dig deeper to see if it’s a specific type of pattern or something else that is giving you trouble at the open. By continually doing this, you will be able to drill down and truly fine tune your trading approach. I know many traders, who, for some reason, really struggle on Friday’s and can’t quite figure out why, so it makes more sense for them to take the day off instead of trading. Why do I point this out? Because sometimes there will be glaring surprises that you didn’t realize. Self-objectivity is a very challenging aspect of a traders’ life because most of the time you are your own boss and only answer to yourself. Thus, tracking your trades and getting concrete, empirical data is imperative to success. As they say, ‘the numbers don’t lie.’ Not only will this help maximize your performance it will also keep you from lying to yourself and making excuses. Something many traders do too often!
Once you have your tracking sheet, at the end of each trading day you will simply go to your trade manager screen that has your executions, share size and time of each trade, and input them into the spreadsheet. When we have all the data compiled, the spreadsheet will populate the remaining categories and then let us know if we need to potentially make a change in emphasis. This means, among other things, that we might need to alter our trade management approach, or our trade strategy parameters depending on the time of the day, day of the week or even long vs. short. Overall, it fine-tunes and helps to improve your trading. Without tracking you are
simply guessing at what you think ‘might’ be wrong, without ever really knowing what the issues are. This is wasting time and costing you money in the process. When you track trades using a professional spreadsheet your mistakes will become obvious and so will the solution. Stop wasting time and start tracking your trades!
There is also one more aspect to tracking your trades: back-testing. I get asked all of the time what back-testing is. Back-testing is taking your past several months’ worth of statistical data and applying it to a new management style. For example, you may have been using 5’ pivots over the past 2-3 months and your results have been subpar, and you want to know if changing your management would help improve results. The way to do this is go back over each trade and look at your entry, stop, target and actual result and then input a different management strategy and re-calculate the results. You are NOT changing the trade entry or stop, you are simply ‘applying’ a new management strategy to it. You can also do this for multiple strategies to get a better idea of the overall market environment you are in and how each strategy would have worked. Although it’s past data from trades already taken, it ‘can’ give you an idea of how that new management approach ‘might’ work going forward, and if it’s more productive than your current management strategy. The example below is a back-test from my actual trades taken over a 1 month period. Note: I recommend using at least a 2-3 month period due to varying market conditions and more meaningful results.
This was a back-test of 8 different management strategies over an 80 trade sample size. As you can see, the results varied quite a bit, and not only in money earned, but also in batting average as well. Sometimes the highest batting average didn’t make the most money, in fact, the one with the LOWEST batting average ended up making the most money, ‘EOD’ or end of the day hold. After this back-test I had a lot of ‘food for thought’ as traditionally I like to be a higher batting average trader because it helps to keep my confidence high, which is important for me to stay positive and focused. However, after looking at these rather eye-opening results, I switched to an EOD hold strategy simply because giving up an extra 30% per month was not acceptable to me.
One last point on this topic; switching to the most profitable management strategy is not always the best thing to do. After all, you might not be able to follow that particular approach on a consistent basis, which would lead to even shoddier results. So, think long and hard before changing management strategies and ask yourself if you really believe it is something that you can consistently apply. There is nothing wrong with ‘working your way up’ to the top. Start with something that is easy to follow, then slowly challenge yourself to be more patient and consistent, this will ultimately lead to your continued growth as a trader as well as a more sizable bank account!
If you haven’t already, it’s time to get serious about your trading and start tracking everything! Without question you will thank me for this advice later on. Simply put, there is no way you can adequately progress in a meaningful way without knowing what your true strengths and weaknesses are. Without a boss or teacher to monitor your daily progress, you must rely on yourself to make the necessary changes, however most people are not objective enough to make the required adjustments. Take the subjectivity and guess work out of it and let the numbers guide your progress. Start using a trade tracking spreadsheet today!