How is trade-review useful?

I’ve recently had a prolonged losing streak. I accept this. If they did not occur, we would not need MM. A few other members here that I respect, have suggested a thorough diagnostic, to try and identify “what went wrong”. I have also read that most successful traders keep a log, and review their performance regularly, and claim that this improves their outcomes.

I do not keep a journal. I print out my setup charts, and notate when and if I take the trade. Later, I print out an “after” chart, labeled as winner, loser or BE. I put these charts in a folder for a given month, showing my total trades for the month visually.

When I try to identify failures, I come to the standard conclusions:

-got in too early/late
-got out too early/late
-moved stops to BE too soon/late
-overtrading/overconfidence

These conclusions do not in any way guide me to make better future trades (with the exception of the last one).

Because the market is uncertain, and dynamic, we have no guarantees that this trade will work or that one will fail. If I use the above list, I cannot apply a different choice of entry/exit/SL on the next trade to improve my results. The next trade is completely independent of the previous one. It is unique.

I find that trade review tells me what succeeded and failed, but not why, and is therefore useless.

I would greatly appreciate any thoughts or examples of how other traders employ trade-review to their benefit, as I believe there is something I am completely missing.

Agreed. I'm with Low on this one. I suppose one could identify which trades were implemented according to system rules (and failed), or which ones were not implemented according to system rules (and failed). I don't see any benefit to having either statistic. And if the idea is you will magically start following your rules more by reviewing such stats... then by all means don't let me stop you.

I also feel the same way about keeping journals. Those who are "conscious" are very much aware of "why" they experienced shitty results. Reading last weeks trading diary is not likely to correct the fact that either (a.) the market conditions were not to your systems liking, or (b.) you were a complete slob and you pissed all over your system rules.

The criteria that you have above, may not be able to identify failures at all. You have only failed, if you did not abide to the rules that you have set for yourself. If you do that, even if the trade is a winner and makes money, it is still a failed bad trade. It is easy to look at a trade with hindsight and say that you got in early/late. The problem is that most likely at time of the entry, you did not have the information necessary to draw that conclusion. What can be seen with hindsight is irrelevant. If you have a trading plan, that is tested and successful, you only need to look at your past trades, to see if they have been placed in accordance with your plan, and if you respected all of your own rules. Of course if you see, that even by following your rules, you will fail LONG TERM, it may be worth revising them.

LOL. I agree wholeheartedly.

Comparing the trade to the plan, is very useful, but comparing the results to the setup is an exercise in futility.

From ROASO "But I will tell you something curious : A stock speculator sometimes makes mistakes and knows that he is making them. And after he makes them he will ask himself why he made them; and after thinking over it cold-bloodedly a long time after the pain of punishment is over he may learn how he came to make them, and when, and at what particular point of his trade ; but not why. And then he simply calls himself names and lets it go at that."

I searched for the exact means of being able to answer that "why" question for a long time. My log is basically a snap of the days trades - but more important than the actual trades (which are really meaningless) is the general why of taking them. What was my thought process; how was I feeling physically; what else is on my mind; what did I read that may have influenced my thinking? My trading log is really more of a Diary - as I agree the study of the setup and outcome is meaning less - but the study of self - now that is where I believe the gold lies in our trade logs.

It'd seem more relevant to include how one failed in the rules, rather than exclude how one made money without the rules. A continual process of reworking one's study leads to inclusion of most any off-kilter way one mistakingly trades, without gathering an unwieldly bunch of indicators /devices / fundie approaches.
Then, instead of 'luck' or intuition a mere glance would suggest, a trade to the good that may fall outside of most rules-based studies may be a proper perspective on the overall balance of a group of trend angles and imagined patterns and lines running through them.
Fortunately, my chart study does this; I am close to leaving the stage where learning disturbs trading, and it is my perpetual hope I can one day take each error to be only a nontrading psychology brought and blended in.

Mr. Green might be onto something here. Based on his approach and rational, I would take it a step further and recommend using an audio recorder, instead of typing or writing. This way a trader can articulate in real-time as to why he is taking a specific trade, and also describe his overall emotional state. I could see this as being potentially beneficial.

It makes no sense to include every failed trade, that was taken outside the rules, and include it in the rules. Most likely, it was a random trade, taken for random reasons. At least as far as the current rules are concerned. Since the trade and the reasoning behind it are random, it would be pointless to try and find out why it worked, and use that in the future. Since it is only one trade, there will not be enough evidence to support the premise, that it will work again the same way in the future. What you are describing, sounds like a futile exercise in constantly optimizing a trading system. I have nothing against optimization per se, but if done in such a manner, it will have terrible results. Even when a discretionary approach is used, adding things (rules) to it, should be done very carefully, with a lot of consideration, and only after a large enough sample of certain events has been analyzed. A single trade, in no way can be used to change, or add to the rules. It's what the noobs do...

The reason for having a trading journal is helps you look at wether your following your trading plan or making it up as you go along.

Another reason is help key in on psychological problems you may be having such as not controling greed by not taking profits or fear not execute your method when it shows up.


-Mike

Warning:this post is extremely cocky I am sorry...

This is an extremely good question

I think you are on the right track with your weaknesses.
*Trading while not focused
*Trading with to big position
*Revenge trading
*Trading at low volume
*Trading while hungry
*Trading into news

And if you can ask yourself all these questions just before the trade and have nothing to write down as bad after the trade, there you go. The perfect trade maybe not...

Exit=just forget it, lets say you can pick entry 50% of the times, exit becomes twice as hard because exit is just another entry point...

So, 0.5*0.5=25% chance of picking it...

You can't decide the price but you can decide when you want to enter/exit + your position size and you have to use both to get the edge...

I also believe people spend too much time back testing and building algorithms, is it so hard to use your brain from time to time its probably better to stay outside. Unless you have so much money that you don't have time to do it manually.

It's not hard neither funny, just pure maths and knowing when to close your platform for the day...

Warning:this post is extremely cocky I am sorry...

Of course adapting a set of rules to one random sample or adding a rule for each time one fails both ruin a set of trading rules. This is simply logical.


It takes extra years of experience, a creatively widened perspective, and wholesale pruning of ineffective rules to exclude the hundreds of pretrade studies and their corresponding rules sets that litter the Internet, and replace them with a short rules-based description of ingredients in common to them all.

I suppose constant revision of one's pretrade study rules could be labelled as chasing the HG. The thread starter highlighted for me another reason to do this: That of making sure any failure one does is due to resistance to trade at all, and that any nonrules win ceases to exist.


Given one already practices this,
and so knows where any failure would fit into the structure of those hundreds of other pretrade studies,
and thus perhaps highlight a missed ingredient realigning their structure more exactly to understanding the flow of one's data (of chosen data type: chart, news or orders),
one failure can make a difference when incorporated.

Opposite of this, adding one rule can too,
if one then practices the adjusted set of rules to see how the mistake fits with the older rules
and then takes the common denominator of the old and the new
to make a reasonable set of new rules.


Such a wholesale concentration on technical studies is moot if one's psychological approach to translating the study into trades' earnings fails. Thus, it varies for each person how long doing the above is cost-effective.

Trading journals are important not because it helps you stick to your trading plan; rather, it helps you refine and improve your thought processes.

I had your exact same problem a few years ago. I would keep a trading journal with various statistics about each of my trades. I would experience some decent winners and then the inevitable losses came. I had no problem taking a few losses in a row (3-4). Eventually some very bad string of losers came to the tune of 7-8 in a row and I kept asking myself why? Why isn't my system good enough to avoid such large consecutive losing trades. Why couldn't I be in harmony with the market's momentum? Why couldn't my trading system be in harmony with the market? Now some trading systems can still be very profitable with low win rates, but my personality wanted something better. My personality could handle 3-4 losses in a row but not 7-8. The nagging question of why I had such large strings of losses was stuck in my mind. Eventually I found out a few reasons that my performance was bad. First and foremost my system sucked because it couldn't successfully be in harmony with the market and thus did not really have a major edge. Second reason was that I did not have good enough filters to keep me out of the bad trades while keeping me in the good trades. Third reason was my trader psychology and emotional development/fortitude needed to be improved.

You are right that every trade is unique. The market doesn't care whether your previous 8 trades were consecutive winners or losers it will do what it wants to do. During a trade unforseen market events can cause your trade to be a slam dunk loser or a slam dunk winner.

I am not sure what type of trading system you use but let me layout a small example.

You have a trading system that has the following entry criteria:

1. A moving average crossover occurs. Once this occurs you look rule #2
2. You ensure that their is a divergence on your RSI indicator in your favor.
3. Once rule 1 and 2 and satisfied then you look for a pullback to a "big round number" to enter a trade.
4. Use w/e stop or exit strategies you want.

I don't know if the system works or not it is just an example.

So you test the trade system out and record the results diligently in your trade journal.

Eventually you come to the problem of why did my trade succeed or fail. You go back to your checklist and ask yourself if you followed the rules of your system. You say to yourself that you followed the rules of your system and deem the trade an acceptable loss.

The problem lies in that many trader's believe that the moving average crossovers, divergence, pullback to round number caused the market to move(as well as many other technical indicators and other stuff). Market's are moved by order flow and I highly doubt that those trade entry criteria caused the market to move. It didn't cause the market to move but that is how many trader's view the market. Some of them don't care why the market moved and that is their own choice.

Market's are moved by order flow and everything that generates order flow. Things such as news events, market sentiment,unfulfilled expectations among many other things that do not appear on the chart. The probability of any trade succeeding is not constant once you place a trade. Even if your system states that your trade has a 40% probability of success that may not be accurate due to the variables in play which do not appear on a chart. It is constantly going up and down because of the information which doesn't appear on the chart. If you only look at charts and ignore the plethora of information which doesn't appear on them then you don't' have a very good chance to know why the trade succeeded or failed.

But people may say I have backtested the system and it worked out. You can easily get a chart and figure out what the RSI reading or moving averages were for that particular day in the past. What is not easy to do is figure out what was truly moving the market, what was generating order flow, what the emotions were of the market participants on that particular day in the past.

Thanks, great post .

Please allow me to respectfully present a different view to that generally held in this thread. I have personally found a trading log/diary/records to be an absolutely critical element in the improvement of my trading outcomes over the last few years.

My humble opinion on this question is that it all comes down to the purpose that you define for keeping such records/logs/reviews.

For example, the purpose of my trading documentation - including 'trading review' is less about my correct execution of my trading plan, but much more about ensuring that my trading plan continues to improve and to reflect the realities of current market conditions and opportunities.

If the purpose of the documentation is clearly defined, then that documentation is far more likely to add value in your trading endeavours. I can honestly (and modestly) say that without good documentation and trade reviews I would probably be still floundering as a 'so-so' trader - to me it is that important.... yes, but that's just me.

My thread doesn't have a premise, just a question. Thank you for your contribution.

well, it just happen to me,
been trading for about 2-3 years,
when i start trading, i was a good student, i follow almost all my master suggestion, and result from that, i never lose an acc.
my master ever said "write a diary so latter you could learn from that", well, i made those diary (for some few week only my bad, cos i'm to bored doing that.)
and than something happen, for some reason, i could not trading for a few month.i'm totally 'off' from trading.
and now after all finish i want to trade again, guess what, i almost forgot all my trading style.
i have no documentary how i did all those trade till i made much money, i try to remember, but only few thing i got. so now i have to learn and doing research from begining, again.
a forex diary is important if you really serious in this business.

your story is one of the most useful lessons that i 've ever read. so now i can know the importance of writing trading diary. I start to do that immediately from now. Thanks for your lesson

Maybe the next trade isn't 100% independent of the previous. There are rather few edges that remain over time. In my opinion you should look at the bigger picture to identify whether stuff went wrong or not. Can you spot things that have changed on the macro level? Examples of this could be changing levels of volatility, or a shift from one market behavior to another (e.g. trending to ranging).

Sometimes a losing streak is just a matter of bad luck. However, it is quite important to identify as early as possible whether a losing streak is pure bad luck, or whether the edge has dissolved.

Very well said, thank you...