Why Are Trade Reviews Important?

December is usually a period of low trading volume and the market is fairly thin compared to other times of the year. It is also a period where many traders take a break from trading and spend time reviewing their trades.

While many traders will take this fairly lightly, I would like to emphasise the fact that your Trade Review is equally important than your Trade Plan.

Let’s elaborate this a little more.

Trade Plan Vs Trade Results

Trade Plan Vs Trade ResultsTrade Plan

Now, I’m going to make the assumption that you have written your trading plan in a structured and informed manner.

Essentially, your trading plan is the Route that you intend to take in your trading career. There are clear goals and you should be able to visualise, based on a step-by-step approach, the journey to achieve those goals.

However, many novice traders struggle and that’ absolutely normal. That’s also the reason why I would encourage beginners to take formal trading education or to become Copycat Traders. All you need is to learn from a professional trader and try to replicate his trading plan. And that’s how most professional traders learnt initially.

If you’ve not written a trading plan in the past, here are some articles that might be useful.

Trade Results

record keepingI’m not sure about your experience but my trading results when I first started trading were way off my trading plan. Instead of ending the month in profit, I often end the month completely opposite of where I intended to go.

If you were like me, don’t be discouraged. However, the most important point here is that you MUST own a Trade Journal with clear records of all your traders. This is crucial irrespective of what your results may be.

Just to note, my view is that traders should measure their trading results in specific time intervals. I usually review my trades on a monthly basis but there’s nothing wrong with reviewing them on a weekly or daily basis. And the aim is to achieve consistency as well as to track progress.

GAP
The difference between the Trade Plan and Trade Results is what I call the GAP. This is quite a common term in the business world and Trading is in essence a business. Once we’ve identified the Gap, we should aim to close the Gap.

The Power of Trade Review

I’ll go straight to the point here – the power of consistent trade reviews is the ability to close the gap in the right direction.

The key here is to close it in the CORRECT direction. Many amateur traders prefer to change the Trading Plan instead. They get caught by the Frustration Bug and they start jumping from one trading system to another. However, what they don’t realise is that the gap has not change.

Sure, changing the plan will in some way or another change your trading and it will influence your results. And Yes, I definitely agree that you should change your plan IF the plan is not producing profitable results.

Unfortunately, many amateur traders do not fully understand their trading plan and conclude that something is wrong as soon as they see red results. Hence, they change the plan without sufficient evidence that the plan is flawed.

Conclusion

closing_the_gapBe Patient. If you have a good trading plan, then you should make an effort to review your trades carefully. Once you get the routine going and you manage to review your trades effectively, you will, sooner or later, start closing the gap by moving the Trade Results curve towards the Trade Plan curve. Yes, sometimes, you need minor tweaks if you learn something new or if you want the plan to fit your personality or lifestyle. However, that should not change the Trade Plan curve dramatically. In fact, the change in trading plan should help you close the gap even quicker.

 

Anyway, that’s all for today. This is also the last lesson (article) for 2012. Thank you for reading and hope you’ve enjoyed it.

 

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