Post-Trade Analysis
How Learning From Your Mistakes Can Transform Your Trading
Post-Trade Analysis
To be successful over the long run in this game, you simply cannot have an ego, you must be able to take losses quickly and over and above just be able to accept that you too are imperfect. The realisation that we are human and thus susceptible to mistakes, is one of the most important concepts to set us out on this life-long journey of education constantly given to us by the market.
A key component of being a successful trader is recognising areas of weakness in your system and studying them to see how you can up your game even further. Self-reflection of our trades and emotions helps us avoid the same mistakes, and so continuously become better traders as we learn to avoid certain situations that would be damaging to our equity curves.
While every trader, even beginner traders, must have a viable set of rules in order to trade successfully - none of these should be rigid for eternity as trading is a life-long process which allows you to adjust your system based on past experiences. Thus, one should adjust and fine-tune their rules as they progress along their trading career in order to eliminate any areas of weakness in their system and put themselves in positions of strength, with the main aim being to maintain higher equity along the way.
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While Post Trade Analysis (PTA) can be as simple as going over your buys and sells of a specific trade, for it to be a meaningful endeavour and have any significant impact to one’s system, I think it warrants more time and attention than that.
What I track from each trade:
Ticker
Buys:
Entry Price
Number of shares
Dollar Amount
Date of Purchase
Current price (automatically updated by excel)
Current P/L ($)
Current P/L (%)
Stops - Initial and current = To measure initial and current risk taken
Type of setup taken
Sells:
Price with number of shares (can be several partial sells)
Date of sale, and so how many days I was in the trade
Risk/reward ratio
A Link to chart before purchase
A Link to chart after closing out trade
Personal grade of trade
Post-Analysis Notes; to see what areas of the trade I could have handled differently. Here, I highlight both positive and negative decisions I made.
The template I personally use is one published by
attached below, it is a very convenient way of tracking your trades and progress - highlighting your batting average, average win/loss ($/%) and several other key metrics which are necessary to understand your recent performance.I have also added to this by creating sections to track my equity curve and trading statistic varying with different setups I trade, for anyone who is interested in doing the same and may need some help - do not hesitate to ask!
For those of you who have not found a trading journal which suits their needs just yet, I highly suggest checking it out below:
The reason I think post-analysis is so effective is because you are essentially looking the decisions you made right in the eye from an unbiased perspective, now that you are out of the trade, such heightened emotion should no longer be present and you should be able to look at things with a more clear and open mind. Here, you can evaluate what you would do similarly if given the opportunity as well as what you would do differently, this constant self-evaluation lets you subconsciously learn what little details you should try and avoid to help your overall trading success.
For example, you might realize:
You are selling too soon, not letting winners run
You are using stops that are too tight, and so your win rate is too low
You are using stops that are too loose, and so you have a good win rate but poor average loser P/L.
These then become evident areas of your trading system that would need work on, and so, as you become directed into a specific area to improve upon, you can focus your efforts on such!
Besides learning about your trading ability specifically, it is also gives you tremendous insight into your own psychology and the kind of trader you are - it tells you whether you are one that panics and avoids holding too long out of fear of losing a gain you may have, or it may tell you that you are a trader that is not aggressive enough in moving up your stops. In general, it is just the best way to learn about yourself both as a trader as well as a person!
I then go on to divide my trades into different categories such as:
A well-handled winning trade
AKRO
A well-handled losing trade
SPRO
A mishandled losing trade
AVXL
This was a clear FOMO trade and so was a clear violation of one of my rules. The proper buy point on an opening range break trade like this is just above the high of day which in this case is 12.73. As I saw price move quickly up through the buy point and I was too slow to react, I should have moved on and realized that I had missed the ideal entry.
Instead, I fell victim to FOMO and ended up entering closer to 13, eventually getting stopped out as I did not buy well.
Carrying out this process in a hypothetical manner for trades in strong stocks you may have missed to go over how you would handle them, is also an excellent learning opportunity and helps you learn what to look for as you define a good setup.
I am currently in the process of doing exactly that task for every single stock listed in the market from the point they were listed to present day, looking for good setups along the way and studying how I would find that setup and then how to buy and sell accurately to maximize the reward of that move:
Kristjan Kullamägi frequently highlights the importance of doing such a study and I also highly encourage everyone to this as it teaches you so much more than you could imagine!
Relevant Material: A Trader’s Journey
All too often people make out stock trading to be an easy money game which it is anything but. In this extremely accurate video, Charles Harris goes over the often hidden but extremely real struggles a trader faces in their journey, it is extremely relevant in highlighting the importance of having a clear mind and stable mental state while trading - and sitting out in periods where this may not be the case, as happens often in life.
Here, he goes over how even after years and years of successful trading, letting your guard down momentarily and getting complacent, can have drastic effects on both your equity curve and life in general. Trading is a life-long process of learning, you have to be ready for that and to be prepared to make inevitable mistakes which in will eventually turn into your biggest lessons if you have passion, self-belief and a never-ending burning desire to succeed.
Thank you for reading, hope it was helpful!