The end of the year brings a few weeks of low volatility to the markets. Spanning close to three weeks from December, this period of lull makes for a great way for traders, especially those who miss trading to step back and evaluate their trading performance for the year. The New Year often comes with resolutions and what better time than this to take some concrete measures to improve your trading performance?
Here are five ways you can analyze your trading performance as well as come up with some easy to follow resolutions for the year ahead.
1. Trading System Check Up
Have you been consistently following a trading system? Why not take a moment to write down the indicators you use, the signals they generate, or make a brief note of how you trade, if you are a price action trader. Analyze your yearly performance and pick out the biggest winners and losers and probe a bit further on how you were trading?
If you haven’t yet connected your trading account to a third-party analytics tool such as myfxbook or fxstat, then now would be a good time to get a snapshot of your trading stats such as the average number of pips your trading system makes for you, the account drawdown, consecutive wins and losses and so on.
The above information can be a great way to visually back test your trading system and identify the weaknesses in your trading system.
2. Why not start your own blog?
If you haven’t yet developed the habit of writing a blog, then probably this should be one of your New Year resolutions. Keeping a trading blog or journal can be a great way to look back and analyze your trades. You don’t need to write up tons of words for your daily entries, but rather keep it simple with the most important pointers such as why you are entering the trade, why you are placing your stops and take profit levels and so on.
Maintaining a journal makes it a lot easier for traders who really want to improve their trading and perhaps get a shot at making a steady income from trading.
3. Identify your emotional weakness
While you may be great at trading your forex strategy, another element to look into is your trading emotions. Are you exiting from your trades too early? Are you overcome with fear that you cut short your losses a bit too soon? Do you find yourself compulsively trading news events?
The main purpose of asking these questions and making a conscious effort to avoid these mistakes is to keep your trading emotions in check. It will be surprising to know that most of the losses or period of high profits is usually driven by emotions rather than your trading strategy or the market conditions.
4. Peer Influence
With trading now becoming more social, it can be hard to ignore all the noise. Sometimes even the more professional traders end up giving in to peer pressure and end up with a losing trade instead of what would have otherwise been a profitable trade had they stuck to their own instinct. Peer influence or pressure is due to the lack of confidence in yourself for the trade in question. The best way to overcome such moments is to instead make use of a demo trading account to go with the trade based on your conviction, or maybe even to open a smaller position so your losses aren’t too much. Making a note of such events and trading decisions is a great way to build confidence in yourself and your trading system.
5. Overtrading or under trading
Have you been a victim of trading a bit too much? Do you see too many small losses which when aggregated turn out to have a significant share in your total account losses? Too much or too little of anything can be bad. Try to find the right balance to address this issue. A good way is to probably switch to a more balanced time frame. Perhaps you have gotten accustomed to trading the 15 minute chart, or maybe you just trade based on the weekly charts. No matter what, exploring changes to your current trading approach can offer some definite improvements to your trading statistics.
In conclusion, contrary to the popular conviction about retail traders losing money in the long term, by taking a subjective approach to your trading system combined with a conscious effort to identify and fix the issues can help the average retail trader to not only gain confidence in the markets but also gives them a real chance of turning their trading efforts into profits.