The continuous feedback loop of a successful trader

Do you know what’s more important than winning in trading? It is knowing exactly why you actually won. Why? So that you can do it constantly. Needless to say it is equally important to know why you lost when you lost.

The successful trader is constantly winning money, no matter the conditions. The economy may be in recession … or not … The algorithmic trading may be accounted for most of the trading volume. The volatility may be over the edge or down to ridiculous levels due to summer holidays. So what … these are all part of the job. You need to make money because this is your job and if you complain and blame external factors for your poor results then think about choosing another profession.

Many would ask how is that possible … to constantly make money in ever changing markets? Among the other 999 little things your overall strategy is built upon there is one directly linked to your consistency. That is the continuous feedback and adjustment loop of your trading approach. This is where your post trade analysis takes place and where you should find out WHY you won or lost.

For a discretionary trader this feedback loop is not an easy thing to put in place, but it’s crucially important to have it. Because, the more useful you want the feedback, the more accurate the analysis should be. The difficulty of building the whole feedback mechanism is finding a fine balance between the depth of the trading details you take into consideration and the time and effort needed for analyzing them. From personal experience I can tell you that you may fail to have a useful mechanism if you are too superficial. You might as well get lost in “analysis paralysis” as well as if you go too deep. That level of needed compromise is somehow personal. You know you’ve reached it when it can answer the following questions:

1. Is your selection technique giving you enough opportunities per your time frame?

2. Are your entries able to give you the price moves you want?

3. Are your exit techniques able to cut your losers short and let the winners run?

If the answer is “No” to any of these questions then you need to ask the next question “Why?” and dissect the effectiveness of that particular technique. Be ready to do the required adjustments if necessary.

There is a point in a trader’s career when being able to answer these questions alone will be more useful than an advice from the mentor. From that point on you can be on your own.