If you want to become a better trader, the first step is to evaluate your results for the past year. This kind of self-reflection has been key to my long-term success as an options trader.
Remember that you don’t want to judge yourself solely based on how much money you made. Yes that is part of an overall evaluation. However, the most important measure is your growth as a trader.
What did you learn? How did you adapt to changing conditions? Did you do things differently to improve your performance?
Changing your trading strategy is hard, but it often leads to greater success and fewer failures.
3 Steps to become a better trader
First, determine market conditions
My process begins with looking at the current environment to determine if the bull or bear market is likely to continue or change soon.
If we are in a bull market, then I can keep using the bull playbook. I can take on some risk, since the market will be more forgiving of errors as well as greedy behavior. I can hold less protection and be a bit more aggressive.
If a bear market is coming, I need to pull out the bear playbook. I need to hold a lot more cash, keep protection working, and tighten my timeline for trades. Mistakes or greed will be punished severely, so I need to play things carefully.
Second, evaluate what you learned
Next, I look at how I performed in the past year and how much I learned about the markets and myself. Understanding the psychology of trading is an important part of becoming a better trader.
This is when I review my trading diary to see exactly what went right or wrong and learn from those behaviors.
Did I make errors that could have been avoided? Did my emotions affect my trading?
I know my success depends on how I manage stressful situations, so I spend a lot of time on this annual review.
Third, look at your overall performance
Were my accounts up and if so, did I beat my benchmark? If not, what happened that caused the deficiency? Is it something correctable?
If my results were strong, what was the driving catalyst for better performance? Did I follow my rules of good risk management? Was I patient? Is there something I could tweak for better performance in the new year?
Holding protection is a constant for me, so did it pay off this past year or was it a sunk cost?
If my results were not good, I ask similar questions, just change the perspective. Could I become a better trader if I have a better risk management system? Did I get greedy? Or did I let fear drive me?
Set yourself up for trading success
Setting aside time for a proper evaluation is like going to your doctor for a physical exam. If you are healthy with positive blood work results and no nagging ailments, you can keep doing what you’re doing. The same goes for your trading and investing. It all comes down to you!
But if you find you need help on your journey to becoming a better trader, get started with my free mini course: Be a Better Trader in 30 days.
