It’s that time of the year again when we reflect on the year gone by. For us traders, it means doing a trading review. But before we get to my year-end review, I first want to share some reviewing tips for traders.
Tip #1: Remember the purpose of your job as a trader
Although making money is important, your job as a trader isn’t necessarily to make money. Your job is to trade well and correctly. So when reviewing the trading year, merely looking at the equity curve can be misleading. Instead, look at how you conducted yourself as a trader. For example
- Did you trade as per your trading strategy?
- Did you veer from your disciplined approach and trade outside the plan? If so, when and why?
- Did you journal all your trades?
- Did you manage your risk and money correctly?
Tip #2: Review your play-book
With the benefit of hindsight, know what kind of market environment you traded in. Then examine your assumptions of how your play-book would react to a particular market against the market environment of your trading year. If it didn’t match the reality of the year, you need to ask yourself why not. Is the difference positive or negative? Are there any changes you need to make in light of the new information? However before you make any changes, be sure that you followed your play-book to the T.
If your play-book can be improved, consider the changes that need to happen and why. And if you don’t have any changes, that’s okay too.
Tip #3: Remember the review isn’t only about pointing out our mistakes
It’s very tempting when doing a review to only focus on our flaws and mistakes. However, the purpose of the review is also to identify and reinforce good behaviour. Note all the areas where you did well in your trading, and congratulate yourself.
The above are some of the critical areas I tend to look at when reviewing my year – and I only look at profitability at the end. Profitability is not as important as the process, as it’s something I cannot control. Then, after your review, it’s time to look ahead and look at the goals you’re setting for yourself for the new year.
My year started pretty well, as I dragged some of the gains and positions from the previous year into 2022. Then the system started dropping positions left right and centre. This threw me to cash, and didn’t trigger any longs until much later in the year. As the year drew to a close, I went back somewhat long.
All in all, I traded really well this year, and I followed my rules. My system performed exactly as expected given the previous year: Going into cash in the face of the bear market, and start picking some positions as the market started to turn.
Since it was my first bear market, I learned a few lessons:
Patience is a harder skill than I anticipated
I expected that sitting and waiting in cash doing nothing would be easy. It wasn’t. I got to a point of missing trading a lot. I missed the thrill of managing my position and the like. But while the market was falling there was nothing for me to do. Now I know how difficult it can be, and I can anticipate better.
It was better to focus on keeping the gains I’d made than trying to pick a bottom
There were plenty of times when I saw price action suggestive of a turn. These turned out to be merely dead cats and I would have lost money. As a position trend trader, I would have given up a good portion of my gains. It’s way better to pick up the knife after it has fallen than trying to catch it while it’s falling.
In terms of return, my return was only 7.23%. It still outperformed my benchmark (Satrix Top40 ETF) which was up only 1.7% after a deep drawdown.
Trading is an interesting sport with strange difficulties and matrices, and I hope you reached your trading goals in the past year. So from my heart to yours: Stay safe, have a merry Christmas, and all the best for 2023.
Traders share a peculiar characteristic: they’re fiercely competitive, but only with themselves. In practice this means that they see every outcome as an opportunity to learn, and they’re brutally honest about both their failures and successes. This also means that they’re hungry for knowledge. They don’t sleep easy with unanswered questions. And they’re seldom satisfied with just one answer.
Find him on Twitter: @njabulo_goje.