The Good, Bad, and the Ugly

— How to Document and Analyze the Results —

Every trading day, document and analyze the results of your trading business. We need to ask these questions:

1. Do I have a plan?
2. Am I following my plan?
3. Is my plan achieving the expected results?

Use the following six steps to answer these questions:

Step 1

Capture a copy of the charts used to select and manage each trade. This can be done any time during the day.

Step 2

Well after the trade is closed and the Trading Idiot has left the building. Write on the chart(s) the name of the trading plan strategy used in this trade.

Step 3

Use one color (e.g., blue) to identify the idealized entry(ies), stop(s), and target(s) as defined in the plan. Based on this information, also document the idealized Risk-to-Reward ratio.

Step 4

Use a different color (e.g., red or orange) to identify the actual entry(ies), stop(s) or target(s) achieved.

Step 5

Compare the results of Steps 4 and 5. This is not about the trade making or losing money. It's about using a properly prepared trading plan. Based on this comparison, mark the trade as Good, Bad, or Ugly:

• Good — Followed the planned strategy.
• Bad — The trade was not a planned strategy (the Trading Idiot was at the helm from start to finish).
• Ugly — Did not followed the planned strategy (a prepared, disciplined trader may have started the day and/or trade, but a Trading Idiot took control). Document the mistakes made. The following is a list of common trading errors:
  1. Entered the trade too soon.
  2. Entered too late.
  3. Planned stop was not honored.
  4. Trade was exited too soon, it was not allowed to run to the planned profit target.
  5. Trade was not in-synch with the broader market trend.
  6. Trade did not have a good risk-to-reward ratio on all relevant time frames.
  7. Trade did not have relative strength.
  8. Trade did not properly anticipate reversal timing.

Step 6

Over the weekend, sort through the week's trades. If you have any "Bad" trades, start with these first. Is this a trade that needs to be added to your plan or is this another example of the Trading Idiot gone wild? You simply must kill this behavior before it kills your trading business! After all Bad trades have been killed, then focus on the "Ugly" trades. Sort this group into mistake categories. Whichever category is largest, focus on that mistake until that error has been purged from your habitual behavior. Always review the "Good" trades. Print out some of the best "Good" trades and use these every morning (often) to train your mind to look for these trades — They're the Picture of Money.

Now let's focus on the last question above, "Is my plan achieving the expected results?" The answer lies in your Measures of Success — Batting Average and Win/Loss Ratio. These are the statistics you can use to professionally monitor your progress. Understand that the creation of a great trading plan and great trading business is an iterative process that takes time and effort — it's an exercise in patience, persistence and attention to details addressed in this paper.

Stan Benson