Want To Be A Better Options Trader? Part 2

I wrote an article earlier about becoming a better trader, link here and want to go into a little more detail now that we have started a new trading year.

In the first part of the article, I covered to importance of always knowing where your P/L (profit & loss) stood at any point and time. By tracking your P/L, you will always know whether your trading is the “good, bad or ugly” kind. This is turn forces you to constantly try to improve your trading skill.

The next step is to break down this analysis even further. So how do we do that?

At the end of each year, it is always a good idea to do a forensic evaluation of your trading for the year. The way that I do this is to go back and add up all of the individual results of my trades and do a little math. I track everything and can do this in 10 easy steps. You must include ALL of your trades and I include commission to see the NET numbers.

1. As I mentioned, I start with the P/L. I want to know my $ return and my % return and compare this to the appropriate benchmark closest to my style. The S&P 500, the Nasdaq, the Russell, etc.

2. How many months were profitable and how many months were losses?

3. What is your monthly Win to Loss ratio?

4. What was your average size trade in $ terms?

5. What was your average size win and your average size loss in $ terms?

6. How many days on average was I in each trade?

7. I then want to know the total number of trades during the year.

8. What is your Win to Loss ratio over ALL of your trades during the year?

9. I then look at what type strategies I used. For example Iron Condors, Butterflies, Long Calls, etc.

10. What is your Win to Loss ratio per strategy and which strategies worked best for you?

Now it is time to take all of this data and face the music. Did you make money? What were your Win/Loss ratios? Which trade types worked the best for you? Which trade types did not work well for you? You can really gleam a lot of info from dissecting your work and seeing exactly where your strengths and weaknesses are.

By doing this on an annual basis, you will force yourself to focus on ways to exploit your strengths and improve your weaknesses. For example, if you made most of your money trading Butterflies, do more Butterfly trades. If you lost most of the time using Iron Condors, take classes, get a mentor and study harder on becoming a better Iron Condor trader.

Bottom line, if you want to make money and be in the game for the long term, doing this simple exercise will make you a better trader.

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Bruce Marshall

Bruce Marshall Income Trading Specialist

Bruce began his career working for a Wall Street firm on a bond desk after the Crash of ’87. He spent several years trading bonds until he switched to the equity side which developed his love of trading equities and options early on. He traded IPO’s, secondaries, and preferred’s. In the early days, he actually had to hand write “tickets” to buy and sell securities.

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