Tuesday, February 02, 2010

A Few Out of the Box Metrics for Intraday Traders

One of the best ways of understanding your trading--and your trading psychology--is to collect data on your trading. There are many metrics available for understanding your trading patterns (see the links below), but here are a few unusual metrics that I've found to be especially illuminating:

1) P/L for Your Largest Trades - When you're at your most aggressive, do you make money or lose? Are you aggressive because you see genuine opportunity, or are you aggressive out of frustration?

2) P/L for Your Most Active Trading Days - When you're placing more trades, do you tend to make more money, or do the added trades detract from profitability? Are you trading more because more is going on in the markets, or are you trading more for reasons other than opportunity?

3) P/L as a Function of Market Condition - How much money do you make in volatile markets? Quiet ones? Range days? Trending markets? Breaking down P/L by market conditions can often highlight trading strengths as well as vulnerabilities.

4) P/L as a Function of Time of Day - Very often, traders perform differently in the morning, midday, and afternoon, as institutional participation (and market movement) varies with the clock. Tracing P/L as a function of time period can also highlight strengths and provide guidance for when you may want to trade most aggressively.

5) P/L Following Winning and Losing Days - How well do you trade after a winning day (or week)? After losing days or weeks? Do you become more cautious after losing periods, more aggressive, or do you trade the same? Do you tend to lose money after winning periods, or do you trade with greater confidence and flexibility after a green period? Patterns of winning and losing often reflect a trader's psyche: risk aversion, overconfidence, frustration, etc.

Coaching yourself begins with self-understanding. The more you know about your trading patterns, the more able you will be to build upon strengths and correct (or work around) weaknesses. The best way to not correct a problem pattern is to be unaware of it.

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2 comments:

Jay said...

I have overconfidence, frustration, risk-aversion, etc. Not sure why but I have all or have had all possible problems, it seems. I've had to change a lot about my entire personality to get to improve. However, even with all of my financial loses, I would still go thru it all again because I actually needed to make those changes and nothing else but trading, I believe, could have been the catalyst for change.

I am much more focused now, but I still make mistakes based on my lack of being 100% focused, prepared, energized, positive, optimistic, happy, relaxed, healthy, aware, and able to associate multiple observations with technical definitions and formations.

I just started to blog my trading successes and failures. I'm hoping it will help me to have it sink in by "going public."

-nqtraderjay

Radek Dobias, H.B.Sc., M.W.S., B.Ed. said...

Just excellent tools, Brett!
I found 1) and 4) to be most useful.

1) is a good tilt indicator.
4) helped me to see which times of the day fit my approach the best.