increasing your skills as a trader, and focusing more on educating yourself.
I am a big fan of postmortems and have written about them for more than
25 years.
A postmortem is taking each of your trades and tearing it apart from
the perspective of seeing what you can learn. This is easiest if you are using
a trading plan because the plan is a record of what you were thinking and
you will not have to rely on your faulty memory to figure out what you were
thinking.
The first thing to look at is the trading plan and see how your analysis
held up. When you said that the stochastics were bearish, did the market
go down? Were your milestones the correct milestones to consider? Did
you correctly identify the driving fundamentals?
As far as self-discipline is concerned, the key factor is the action section
of the trading plan. Did you follow your plan? Did you enter and exit
the trade when you said that you would and use the techniques that you
said you would? Grade yourself hard because it is here that your lack of
self-discipline will really show up. It is here that most traders fail. They
typically enter the trade correctly but fail to use the exit technique outline
in the plan. They either panic and jump out too soon or get stubborn and
don’t get out until it’s too late.
Take the trading plan and use a red pen to grade yourself. Mark on
the plan where you succeeded and where you failed. It’s important to see
where you succeeded because you want to promote good habits in your
trading. You want to see where you failed so that you can reduce the
propensity to do it again.
Take the initial trading plan and your postmortem and file them away.
Then, every several months, take them out and read through them. You will
find it fascinating to see a living record of your trading.
Look very closely for patterns of success and failure. For example, I
studied Elliott Wave analysis for months. I initiated many trades largely
based on my Elliott Wave analysis. I gave up on it when I studied my postmortems
and realized that I rarely had a winning trade using Elliott Wave.
That doesn’t mean that Elliott Wave is not a valid form of analysis but it
does mean that I couldn’t apply the concepts and make money.
You will start to see areas where your analysis is consistently leading
you to profitable trades or where your behavior is leading you to losing
trades and so on. Look to study the profitability of your techniques and,
more important, where you succeeded or failed from a self-discipline point
of view.
The postmortem is a key to becoming a better trader. You can continually
refine your abilities as a trader. Let’s say that you are trading five
different methods. You go out and start to trade a sixth method. After a
year, you sit down and throw out the worst of the techniques and trade the
top five for the coming year. Of course, you will want to now find a new
sixth system to test for the next year. Perhaps the new system is better
than one of the old ones. Perhaps not. You will gain incremental profit if
the new system is better than just one of the old ones. Multiply this concept
for the rest of your trading career and you can see that this can add
dramatically to your profits each year.
Now imagine that you have increased your annual profits by replacing
inferior systems with superior systems each year. Now compound those
gains.
Again.
And again.
Do you see how powerful this substitution technique is for building
serious wealth in your life?
Notice how the postmortem forces you to grade yourself and your techniques.
It forces you to learn more about trading. It forces you to become
more focused on education and self-discipline. You will feel less pressure
to make money and more pressure to become a better trader. You will either
unlock the key to becoming a successful trader or you will find the
reason why you cannot be a profitable trader.
Source: How to Make a Living Trading Foreign Exchange: A Guaranteed Income for Life
