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30
Dec

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Make 2020 your best trading year – 8 steps

It is time to prepare yourself for a new trading year and a new trading decade. In this article, we share tips and tricks on how to use your Edgewonk journal to start the year right. 

 

What if you have skipped your journal routine?

If you have been slacking with your journal, this is the best time to pick it up again. Don’t worry about all those trades you didn’t enter and do not be too hard on yourself. Just get going and build momentum again.

We also do not recommend entering all past trades in a rush. There is very little, if any, value when it comes to entering dozens of past trades you do not even remember. 

You will reap the biggest reward when it comes to journaling when you enter trades as long as the memory is still fresh. The learning effect is greatest because you still remember the mistakes, the lessons, and your trading behavior. 

So whether you are a completely new Edgewonk user or you want to get back into journaling, just do it. 

If you need a kickstart, you can watch the first lessons and videos from our Trader Development course which will help you get started with Edgewonk: click to watch

 

And now, here are our tips for reviewing your past journal entries. (You can also send us your journal and we will do a video review for you)

 

#1 How disciplined are you?

The first step when it comes to reviewing your journal is checking the Tiltmeter in the Journal tab.

The Tiltmeter shows you immediately how disciplined you have been. If you see a green bar, it means that you have respected your rules and mostly traded disciplined. Great!

If you see a red bar, it means that you have broken your rules, taken trades outside of your trading plan and haven’t been disciplined. Especially if you see streaks of red Tiltmeter bars, it should get your attention and you need to dig deeper. 

This is a first very important heads-up. 

 

#2 Is your Reward/Risk ratio large enough?

The PCP traffic light analyzes your reward/risk ratio and compares it to your winrate. If your reward/risk ratio is large enough, you will get a green traffic light. If the reward/risk ratio is too small, the red traffic light means that you will lose money over the long term if you keep taking those trades because of a negative expectancy.

If, for example, you have a 50% winrate, you need a reward/risk ratio of 1:1 of larger to trade profitably over the long term.

Important: You need at least 30 trades in your Edgewonk journal for the traffic lights to start working.

The PCR analyzes the reward/risk ratio after closing out the trade. Many traders tend to cut their winners short or let losses go on for too long. If the PCR is red, it means you have probably done that.

If you see that you often turn a green PCR into a red PCP, you may have issues with trade management.


 

#3 Are you in a losing or a winning streak?

Next, we can go to the equity graph and take a look at the performance line. There are a handful of things to look out for:

  • Are you in a losing streak and is the line heading down? Then also check your Tiltmeter to make sure you are not breaking your rules.
  • Are you in a winning streak and is the line pointing upwards? Then also make sure that you stick to the rules and do not get over-confident.
  • Watch for outliers. If you see sudden jumps in your equity line (both up and down), it usually means bad risk management. Look into your position sizing.

 

 

#3.1 Streak analysis part 2

The underwater table provides insights into drawdowns and losing streaks in a different way. 

Whenever you see an orange part, it means that your current account balance is not at its highest point. Many traders experience aha-moments once they realize that you are in a drawdown most of the time. It can take away a lot of pressure. 

But if you see the area in the underwater table rise too much, the drawdown is intensifying and more digging is required. Consult the Tiltmeter to see if you are breaking your rules and under which circumstances.

 

 

#4 Is your trading too risky?

The Simulator takes your current performance and then simulates 500 trades based on your metrics. In the screenshot below, we set it to 20 different simulations.

The most important thing to look for in the Simulator is how far the individual lines are apart from each other. The farther apart, the more uncertainty is in your trading. In this example, there is a lot of variances (uncertainty) in the system because the individual lines are all over the place. Some simulations end up positive and some negative. But there is no obvious trend.

 

 

This is what you really want to see. First, the individual lines are relatively close to each other and the lines trend in the right direction. This system has a high positive expectancy and the trader can assume that his future results have a high probability of staying positive. 

If your simulator is all over the place, you need to do more digging. Make sure to watch the video below (open in Youtube) to get an idea of how to turn such a trading strategy around.

 

 

 

 

#5 Outliers that cost you a lot of money

When it comes to improving your edge and your trading, the Trade Analytics can help you find areas in your trading that cost you a lot of money in the most effective way. 

In Edgewonk, you can customize many areas so that it fits your trading style and level of expertise. You can set up Custom Statistics to track whatever you want. Here are a few usage examples: Examples 1, Examples 2

The most important thing when it comes to making big improvements quickly is to look for outliers. Especially negative outliers in the Expectancy($) and Sum Gain($) column need to be addressed. It means that individual areas of your trading cost you a significant amount of money.

We have seen traders that are SO close to profitable trading without even knowing it. And the only thing that seems to be holding them back is a few individual outliers: almost profitable review

 

 

#6 Are you managing effectively

Micro-management can destroy even the best trading system. Micro-management means that traders constantly fiddle with their trade. They move around stop loss and take profit orders throughout the duration of their trade. This is usually done without a plan and such behavior is driven emotionally – especially when the trader trades their PnL. 

The Trade Management graph in Edgewonk analyzes the trade management decisions and compares it to a set and forget approach. 

In the screenshot below, the actual trading performance is the orange line and it is well below the green line which represents the potential performance based on the set and forget approach. In this case, the trader may have made more money without any trade management actions. 

Such insight can be a big aha-moment for traders when they see that they can trust in their trading plan and do not need to engage in any management activity. 

 

 

#7 The best post-trading routine

The Sessions tab (under Trade Process), allows you to recap your trading day/week/month in an effective way. At the end of a trading week, create a new session and get detailed statistics and a performance breakdown. 

But even more important, you can write down thoughts, lessons learned and capture your mental state. This will help you in your trade review and you can quickly follow your mental development and status over time. 

Although looking at the actual numbers is very important, you must also understand yourself as a trader and how you handle yourself. 

We recommend coming back to the Sessions tab regularly to get an idea of your current state and to remind yourself of important lessons. 

 

 

#8 Inconsistencies in the Chartbook

You can save up to 4 screenshots per trade in Edewonk. When it comes to using the Chartbook, here are two tips:

  1. And as technical traders, your trades should mostly look very similar. If you spot significant differences, it could mean that you are taking trades outside of your trading strategy.
  2. We recommend capturing screenshots of completed trades. This way, you can get a feeling for what has happened after the trade has been closed. If you close out winners too early, this can be an eye-opener once you see that the price usually keeps going after your exit.

 

 

You can use this process for your weekly or monthly trade reviews as well. It provides a robust framework for analyzing your trading and for spotting potential problems early on. 

And with that, the whole Edgewonk team wishes you a great start into 2020. 

Happy journaling!

 

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