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

BENCHMARKING

Now that you have the framework to track key trading performance data, you may be asking yourself, “What does it mean? What does it tell me? When do I know if I am at the performance level I should be at?” After compiling your results, you need to be able to compare such results to another metric to truly determine what the results mean. What should we measure or compare our results to? The art of benchmarking, or comparing a result to another metric or other standard, is a very valuable practice to bring perspective to your results. Here are a few approaches to benchmarking:

Previous results—A very effective comparison to determine advancement or progress in your business development. It is one of the more common benchmarking techniques if one records accurate trade data.

Plan expectations—This benchmark brings an element of compliance to the mix rather than just a quality comparison. A trader can have improvement in results over time, but one cannot be meeting his or her business goals if gaps exist between actual and plan results.

Best in the business—The ultimate comparison is that against the best traders. Best-in-class benchmarks are used in all industries to determine how one stands in relation to one's peers. Everyone wants the J.D. Power or Good Housekeeping seal to show they are the best at what they do. Many corporations include these benchmarks in their mission statements, thus validating their importance and effectiveness in motivating one to strive ...