As a tool for continuous learning, traders should conduct what I call “trade openings”, carefully analyzing and evaluating both losing and winning trades. For me, this kind of weekly or monthly trade review was an incredible learning tool when I first started, and it really honed my trading skills.
It really comes down to asking yourself a series of questions about every trade after it’s closed. You can make a simple checklist of these questions or even add it to your trading plan at the end. Just make sure you do a trade showdown because it can greatly shorten the trading learning curve and help you develop an effective trading routine.
The main questions to consider when opening your trade…
Obviously, some of the following questions only apply to winning, and some only apply to losing. You can add to this list if you wish, but don’t get too carried away, just stick to the basic questions for your trading autopsy, I’ve detailed them below…
Questions we need to ask ourselves regarding trading and entry setup:
- How could I avoid such an erroneous signal?
If you took a loss, you need to determine if it was a loss due to you overtrading/trading when you knew you shouldn’t have/didn’t follow your trading strategy, OR it was a simple statistical loss that was unavoidable (in you will have some losses even if you trade correctly, is that normal)? This is an important question, because if you are losing due to overtrading, this is a big problem that you need to end as soon as possible if you do not want to empty your trading account.
- Why was this signal so good?
This is a question you can ask about a winning or losing trade (losing trades can and should be good setups as long as you stick to your trading strategy and don’t overtrade). If it was a very obvious trade setup, describe what it looked like and briefly note the surrounding market conditions, eg “long tail bullish pin bar buy signal from support in an up market, pin bar tail sticking out.” down through support, making an obvious false breakout of the level.”
- What confluence was and was not in winners and losers?
What was the merger of the trade? Was there a deviation in both the key level and the moving average? Perhaps it was at the 50% level and the key level of the chart. Here you will answer what type of chart merging took place in the trade or no merging in the trade. Answer this question for both winners and losers to see patterns in the differences in fusion between the two.
- What factors were and were not present in any relevant transaction compared to others?
Were there any other factors that you think may have contributed to winning or losing a particular trade?
- What went wrong and what went right after the initial entry that helped the outcome of the trade?
If you notice anything that further supported the deal after you entered, discuss it here. It could be another trade related signal, maybe on a different time frame, or maybe a fresh level breakout, etc.
The questions we need to ask ourselves about trade management are:
Usually traders mess up in trade management. Most of the mistakes traders make when managing a trade are the result of simply doing too much and getting too carried away. Generally speaking, the less you micromanage your trades, the better you will perform in the long run. Here are a few questions to ask yourself about trade management when entering a trade:
- What would happen if I left the trade alone and didn’t exit earlier with a small loss or a small profit?
In a recent article, I wrote about what I call “trading account death from a thousand cuts, this is basically when you are losing money/busting your trading account because you are taking a lot of small losses. Small losses are usually better than big ones, but the best way to take a loss is to simply take a predetermined amount of 1R risk and place your stop loss logically according to the market structure, and let the trade play out, give it room. he needs to breathe, and either take a loss that you have predetermined that you are comfortable with, or you will make a profit. Taking losses before your stop loss is hit all the time means you are not giving your trading edge (strategy) the time and space needed for it to work and potentially work in your favor.
- What would happen if I didn’t exit the trade right before my profit target and instead left it open… would I lose or win?
It’s pretty obvious. This is a good question to see how well “set it and forget” your trades will work (usually it works pretty well).
- What would happen if my stop loss was a little bit wider…would it matter?
Sometimes your stop loss is a bit wider than you originally wanted and that can be the difference between a winner and a loser. Read my trade entry trick article to learn more about the best way to place your stop loss.
- What would happen if the risk reward was less, say 2R instead of 3R… would make this a profitable trade?
Sometimes it pays to take a smaller reward, or rather a more logical reward. We always want to aim for rewards that are at least close to 2R, but I have found that traders often have unrealistic expectations about how much reward they can expect on a given trade.
- What was your mental state while trading? Did you sleep well?
This is a very important question, and you must answer it honestly (as, of course, with all the other questions here). But it is very important that you assess your mental state while you are trading. It’s okay to check your trade two or three times a day, but if you sit at your desk and only think about your trade and what it does, you’re in trouble. If you don’t sleep well because you can’t stop thinking about your trade and you’re constantly checking your mobile trading app, you have a problem. Usually, this type of trade preoccupation is the result of an over-drive to make money, i.e. you risk too much on every trade or trade too much and try to “force” your trading account into profit.
Don’t get carried away asking yourself questions about “what if” scenarios, stick to the basics and just make sure you learn something and pay attention to the information you find.
There is no perfect system or way to do this, the important thing is that you analyze not only trading setups and charts, but also your own behavior. Over time, these “trading showdowns” will help you gain a deeper understanding of your trading strategy and understand how you should behave in the market in order to maximize your trading results.