If you are a trader, you just cannot afford to finish your trade for the day and walk away. Remember, as much as trading is about discipline, it is also about intellectually and critically evaluating your actions and your ideas. There is nothing like a formula for successful trading and your own formula has to evolve over a period of time. One thing you can do is to conduct a pre and post trade analysis as well as post trade processing workflow. Let us see how to do post trade analysis in much greater detail. There 8 steps to post trade analysis..
Maintain a trade diary
What is a trade diary. It basically documents what you are doing and why you are doing it. Whether you are selecting a stock, initiating a trade or closing out the trade, make it a point to record with reasons. This trade diary is one of the most important documents that will evolve into your trading rule book over a period of time.
Be brutally honest, that is where it starts
To make the best of your post trade analysis, you need to be brutally honest with yourself. You are trying to get to the root cause of your actions and trying plug loopholes in your trading process. You are not making a sales pitch so don’t try to hide your faults and hide your achievements.
Document your justification for a position
It is one thing to take a trading action and another thing to document it thoroughly. If you are not able to write down the complete justification during trading hours, try to do it post-trading. Unless you do that, you will never be able to judge whether your line of thinking is correct or not.
Evaluate where you went right
We are not just talking about your right trades or profitable trades here. We are talking about right actions. When you decided to stay out on a volatile market see if you can template out of it. If you stopped out a position immediately and saved yourself from a bigger loss then template it immediately. Being right is not just about profits but it is about taking the right decisions to protect your capital too.
Evaluate where you went wrong
This is the more difficult part of the exercise. Most of us are quick to express where we went right. It is much harder to acknowledge where you went wrong. When the market volatility leads to losses, we normally blame the market or some trade war between the US and China. The truth is that was never in your control. The focus should be what was within y our control but you did not take action. That is more important.
Make a note of plan of action for next day
All the learning is fine but we now need a call to action. What does all your post trade analysis result in? You conclude that you need to put shorter stop losses. You could probably come to the conclusion that you must avoid banking stocks till there is clarity on the RBI policy. These are your action points and must be implemented from the next day itself.
List out learnings to add to your rule book
Implementing next day is the action part. But the real challenge is what should be template and added to the rule book and what should not be added. Remember, the rule book is like your constitution and the only way you can keep it robust is to constantly keep updating it. Also constantly review your rule book and delete ideas that are no longer valid. That will make your rule book as current and as dynamic as possible.
Keep things in perspective
Last but not the least, always put all trades in perspective. That is one of the most important lessons of post trade analysis. Consider these instances. For example, losing 10% on your capital is bad but losing 10% of your profits made is understandable. Don’t take risk that is not in tune with your risk appetite and your risk capacity. In fact, risk capacity matters than more than risk appetite. Lastly, all performance is relative. If you earned 5% last month, and most of the other traders have earned 10%, then there is nothing to write home about. But if you have earned 1% last month when other traders lost 10%, then that is a much bigger achievement. Perspective matters a lot in post trade analysis.