It’s this period of the year.
The first half of the year is over. Which means post-analysis. I absolutely love it.
This is the exercise that turned my trading around a couple of years back.
It allows me to discover the mistakes I do over and over again, to find ways for me to reduce those mistakes, and also to try and improve my strategy.
My Results: First Half of 2017
As you may know, there are 5 very important stats that you must know about your trading.
1- your Win/Loss Ratio: the percentage of winning trades
2- your Average Profit
3- your Average Loss
4- Average Winning Trade Holding Time
5- Average Losing Trade Holding Time
1- So far this year, based on 168 trades, my Win/Loss ratio is quite low, at 37%.
Yes, that means I was wrong a whopping 63% of the time this year.
2- My average profit was 13%, much lower than my historical average profit of 20%…
3- My average loss was -5%, which is better than my historical average loss of -6%.
4- My average winning trade holding time was 25 days. Much lower than my historical average winning trade holding time of 50 days
5- My average losing trade holding time was 6 days. Lower than my historical average losing trade holding time of 15 days. This is good. That means I stay in my winners much longer than my losers.
Now my actual returns so far:
My account is up 33.15% for the year.
Although Etrade gives the break down per month and quarter, I personally couldn’t care less since I’m not a day trader, nor swing trader, nor position trader. I just stay in my winners as long as my trailing stop is not hit. Meaning I sometimes stay only a couple of minutes in a trade, and sometimes more than a year.
Overall, despite stats much lower than my historical stats, I’m on my way to a normal year since my average yearly profit is about 40%.
Post-Analysis – Reviewing My Past Trades
I went through every single trade I took this year (168 trades), checked whether I made some mistakes (didn’t respect my trading rules), and created a “perfect” spreadsheet in which I listed all the trades I should have taken (and exited perfectly) if I had traded my strategy flawlessly.
This awesome exercise blows my mind every single time… Well this time was no different.
My stats that were suggesting lots of mistakes (since they were way off my historical stats) didn’t lie.
Here would have been my stats if I had traded perfectly:
0- Number of trades I should have taken: 78 (vs the 168 trades I took)
1- My Win/Loss ratio should be 51% (vs 37%)
2- My average profit should be 20% (vs 13%)
3- My average loss should be -6% (vs -5%)
4- My average winning trade holding time should be 61 days (vs 25 days)
5- My average losing trade holding time should be 11 days (vs 6 days)
And now the most important number. If I had traded my strategy perfectly… my account would be up 95.92% for the year, instead of 33.15%.
- Profitable traders make mistakes
Despite having been profitable for several years, I still make A LOT of mistakes.
I took MANY trades I shouldn’t have taken, basically overtrading.
I sold many winners before a proper sell signal, often getting scared either by the size of my paper profits, or the general market.
- Win/loss ratio is important, but not as important as letting winners run and cutting losers short
Despite a whopping 63% of my trades being losers, letting my winners run not only paid for all the small losers, but also generated nice profits. That’s the simple recipe of how most profitable traders make money in the markets, year in, year out
- Confidence in your strategy is key
Doing this exercise on a regular basis always gives me a huge boost of confidence in my strategy. I know that by following blindly my rules, I would have made much more money than by trying to second-guess my strategy, wrongly assuming that my experience and “feel” for the market would sometimes allow me to take better trading decisions. It might be true for 1 or 2 trades. But trading is not about 1 or 2 trades. It’s about hundreds of trades. And after a hundred trades, my strategy beats my discretionary decisions every single time.
Most trading mistakes stem from not trusting your trading strategy.
- Do NOT compare your results to others
33.15% return may look pretty good to most traders. And ridiculously low to a handful of others.
Many people use indices like the S&P 500 as benchmark to compare their results.
I couldn’t care less about how much return other traders had. Or how the S&P 500 performed this year.
I only focus on trying to get the best performance out of my strategy. Looking at indices and other traders (fake or real) performances will steal your focus away from your main goal, which is to make money consistently. I don’t care if the general market is down -10%, or if trader X is up 250%. I just make sure that my own strategy makes money consistently, and that I do my best to trade it flawlessly.
- Never stop improving yourself
Regardless of whether you have 2 years of experience in the market or 30 years, you will always make mistakes. Never stop trying to improve yourself. It is literally true that once you master yourself, you’ll master the market. It’s not you against the market. It’s you against yourself.
- Never stop improving your strategy
There will always be room for you to improve your strategy. After reviewing all my trades, I ran many simulations to know whether changes in some of my criteria would have improved my performance, such as taking some profits on the way up, moving my primary stop loss level, using different moving averages, trading only stocks below $20, trading only stocks with triple digits EPS growth rate, … And after many years of fine-tuning my strategy, I can tell you that once again, I found new criteria that would have increased my edge even more.
Why Am I Sharing My Results?
You may have noticed that almost NO ONE shares his trading results. It’s almost taboo, like talking about money, or sexual preferences… Privacy is a right and is justifiable for most traders. But in my opinion, any trading “guru” who offers paid subscriptions, courses, books, or trading signals should be transparent and publish his/her trading results.
“A mentor should have already accomplished what you’re trying to attain” – Mark Minervini
Regardless, I want you to know that I am NOT sharing my results for showing off or to prove anything to anyone. And in fact, I’m not selling anything either.
Nope. I’m sharing the most valuable process I found that can turn your trading around and improve dramatically your results.
I wish every single one of you would actually do it. This is in my humble opinion, THE tool that will bridge the gap between you and consistent profitability.
And that is post-analysis, the process of reviewing every single trades you took and analyzing whether you made mistakes. This my friends, is the Holy Grail of trading.
This is an awesome article.
Thanks Lee. Much appreciated
That was great. One of the best blogs I’ve ever read. Thanks for the transparency. You alluded to the “fake or real performances”. So hard to cut thru all the b.s. that is out there. Somehow I believe you are being honest and truthful. Thanks.
Wow, thanks so much for your nice comment. It just made my day!
Yup, it can sometimes be quite overwhelming to try to cut through all the crap out there. I guess a simple rule of thumb is to always investigate whether the one you’re taking advice from or giving money to is trustworthy and is an actual expert in the field you’re interested in. Thanks again!
<3 Thank you
Best article I have come across in a long time. Transparency is king.
Thanks for your kind words VN. Transparency and integrity indeed.
Hi Fred.. Great article…do you share your strategy…via books or classes?
Thanks Mark. I haven’t shared my strategy just yet. There are many positive expectancy strategies out there, so it’s possible to make money consistently with ANY of those strategies, if you are disciplined enough to apply them perfectly.
My own strategy is mostly based on the strategies of Jesse Livermore, Nicolas Darvas, William O’Neil, Mark Minervini, and especially Jesse Stine.
To observe one’s own behavioural patterns in post-analysis and learning about the self chosen strategy is crucial I see…. (and requirement is to not look at other benchmarks). But perfection is not reality…
Really appreciate this honest blog post. Keep the good work up Fred 😉
Thanks for your nice comment Niclas!
We can never reach perfection. But can always strive for progress.
Post-analysis allows you not only to discover your behavioral patterns (which is the starting point for being able to improve), but also can give you tremendous confidence in your system, confidence required for following your system no matter what, especially during those unavoidable losing streaks. Cheers!
Looks like I am going to have to start recording my avg profit and avg loss. Even though I am profitable, I do make so many mistakes; my main mistakes being: 1/over-trade 2/Profit taking strategy. I have ordered the 3 books in your top 3, hope this will give me some ideas!!!