The Risk of Trading: Mastering the Most Important Element in Financial Speculation

PERFORMANCE MANAGEMENT: WHAT IS THE DATA TELLING ME?

Just looking at the result of a trade should not be the basis of judging if it was a good trade decision. Good trading decisions can have negative outcomes, and bad trades can work out. It happens quite often in trading. If a win was good and a loss was bad, there would be little need for trade reviews or trade audits. There would be one metric: wins vs. losses. Our data can tell us so much more, and the best in trading and in other businesses use data to bring their game to the highest level. It is unfortunate that many new traders do not understand this concept of good trading vs. poor trading. Just ask a trader, “How did you do today?” Almost always they will base their day on their P&L performance. There may be a few digs about missing a few trades or a couple of bad beats or even that runner that just kept going. For the most part, the response will end with some reference to their points or dollars gained or lost. Generally, when a trader makes good decisions based on historical data and not from emotion, he or she will generally receive better outcomes over a large sample size of activity.

Being able to interpret what your trade data are telling you is an art that breeds value for a trader. It allows one to pinpoint deficiencies or areas of development. It may further confirm a belief that a setup has a valid edge or it may invalidate it. Assessing data can also bring out psychological deficiencies that need to be overcome. ...