Post-Analysis Season

 

When we invest, we accept the fact that we are going to be wrong on many of our trades and make mistakes. We learn to develop our skills where we can press on trades that we get right, and also, cut losses quickly on the trades we get wrong.

As with any skill, identifying your weaknesses is an integral part of the improvement process. The first step is to be objective enough to retrospectively recognize your mistakes and identify detrimental patterns.

Print your charts.  Focus extra time on both your very best and very worst trades of the year. Mark-up the chart where you bought the stock, added, and closed the position. Keep a chart of the indexes handy to note whether each stock reacted in tandem with or against the overall market.

Relive the trade. Try to remember what your thought process was throughout the trade. An excellent way to refine this part of your post-analysis is to continuously keep notes on each position. This will help you document market sentiment, and also keep track of your thinking at that particular point in time.

Write down your mistakes. Recognize where you went wrong. Try to be objective and analyze the trade as if it was a stranger’s account. The point of this process is to help take the ego out of investing.

Develop rules. Develop your own set of additional rules that will help you counter making the same mistakes. No one can help you with this step since every investor reacts differently to the market. If it helps, write these rules out and keep them posted near your trading desk.

If you have any questions, reach us at 800-424-9033 or reachus@marketsmith.com

Happy New Year!

Best returns,

The MarketSmith Team