This week’s question comes from Mark, who asks:
How should you track and measure progress as a trader?
Most Forex traders I speak with only track whether their equity curve is moving higher or lower.
While that’s certainly a relevant and worthwhile thing to measure, it doesn’t show you the big picture.
For example, let’s assume for a moment that your equity curve is moving lower. How will you address it?
Without more information, you’ll be running in circles.
That’s what happens to most traders. They put on a position, wait to see whether they were right or wrong, and then move on to the next setup.
But without tracking and measuring their progress, how will they ever achieve consistent profits?
I feel pretty confident in saying that no trader has ever become successful without tracking their performance. It would be like an athlete hoping to “go pro” without addressing areas that need improvement.
The business of trading is far too competitive to simply hope for consistent profits. It not only requires hard work and perseverance, but also demands insight into what you’re doing well and what you might improve.
You can only get that kind of insight if you’re tracking and measuring your trading performance.
In this post, I’m going to address a few misconceptions about what it means to track performance as a trader. I’ll also share some of the data points I track as well as a tip about how to be consistent with your journaling.
Let’s get started!
Think Percentages and Ratios, Not Pips and Dollars
So you just made a 200 pip profit selling the U.S. dollar against the Euro. That’s a good thing, right?
Most traders would say yes without hesitation. I mean, how can you go wrong making 200 pips?
However, I always hesitate when I hear this.
The same goes for someone claiming they made 400 pips last week or month. You’ll hear a lot of this kind of talk in Forex forums around the web.
You see, without pairing those statements with the risk it took to achieve them, they’re incomplete. Not only that, but depending on how much risk or leverage was used to achieve them, incomplete statements such as this can be dangerous.
For instance, what if the trader who made 200 pips buying the EURUSD risked 600 pips? Is that still a good thing?
I suppose the answer depends on your opinion on acceptable risk to reward ratios. But in my world, risking 600 pips to make 200 pips is a terrible bet to make.
With a 1:3 reward to risk ratio, you would need to be right more than 66% of the time to make money. That’s a difficult task for any trader regardless of his or her level of experience. More importantly, it’s unnecessary.
But those odds are not what is important for the purpose of this post. What is important is recognizing that pips and dollar amounts are meaningless on their own.
To get a complete view of your performance, you must measure your risk to reward ratios on all trades. You should also focus on percentage gained or lost versus dollars gained or lost. Again, it goes back to using figures that paint a complete picture of your performance.
What Should You Track and How?
The data points you decide to track will depend on how you trade as well as your personal preference. Some traders like to keep things really simple and only track a few data points, while others prefer to track a dozen or more.
To get you started, I’ve included the data I track for my trades. Below is a screenshot from the Daily Price Action trading journal I created for lifetime members.
- Date: The date the trade was executed
- Currency: The currency pair being traded
- Buy/Sell: Did you buy or sell the currency pair?
- Entry Price: The price I bought or sold the pair
- Stop Loss: What’s my exit strategy if the market moves against me?
- Planned Target: Where do I plan to get out and why?
- Planned R/R: The planned risk to reward ratio (must be above 3R)
- Reason: Reason for taking the trade (pin bar, head and shoulders, etc.)
- Status: Is the position open or closed?
- Profit/Loss: Did the trade result in a profit or a loss?
- Result: Result of the trade (think ratios and percentages)
As you can see, I like to keep things simple yet thorough. I used to track nearly twice the number of categories but found I wasn’t tracking as consistently. All of the data points in the world won’t do me any good if I’m not tracking them.
For more on creating and maintaining a trading journal, see this post.
In addition to the information above, I also recommend that you keep an annotated chart at the time the setup materialized. This will allow you to refer to the setup and identify precisely what went wrong or what you did well.
As for where you keep this information, the decision is up to you. Some traders are better with technology and therefore might prefer to use an app or an Excel spreadsheet. Other less tech-savvy traders might opt for a simple notepad and a pen.
Although I consider myself fairly good with technology, I used to keep track of all my trading performance on a notepad.
Just like the information you decide to track, choosing a medium for your journal is a personal decision. It should be something you’re comfortable with and have easy access to daily.
Measuring the Data
Once you have an effective way of tracking data, measuring your performance is rather straightforward. In fact, you should know right away what you’re doing right and what can be improved.
The process of measuring your performance is highly personal. It also depends on the trading strategies and methods you employ.
My best advice is not only to keep the process of tracking data simple but to make it as visual as possible. You should be able to glance at the data and get a good feel for what you’re doing wrong.
In most cases, the exercise of tracking your trades will expose your falts. In other words, you may not even need to study weeks or months of data to identify the problem.
Keep It Simple
Regardless of how you decide to track your performance, be sure to keep it simple. You want to make it an easy task that you can complete in a matter of minutes.
If you overcomplicate the process or use a medium you aren’t comfortable with, you’re far less likely to stick with it.
Also, the more information you add to your journal, the harder it will be to figure out what you’re doing right, or what can be improved.
I recommend starting with the smallest amount of data you need to measure your performance. You can always add more later, and by keeping your data points to a minimum you’re more likely to stick with your new routine.
You should always track and measure your trading performance using percentages and ratios, rather than pips and dollars. It’s okay to note how many pips or dollars you made or lost, but don’t make the mistake of measuring your performance with them.
If you only look at how many pips you made or lost, you’re not seeing the big picture. In fact, pips, and even dollars made or lost, are meaningless on their own because they lack relativity.
By using percentages and ratios, you get a complete view of your trading performance. This allows you to make informed decisions, rather than just guessing at what might be wrong.
Above all, keep it simple. Whatever method you decide to use to track your performance, it should be something you can see yourself using every day. Otherwise, you will soon abandon it which won’t do you any good at all.
Your Turn: Ask Justin Anything
I’d love for this new weekly Q&A to be successful and provide an invaluable repository of answers to common Forex questions.
To do that, I need your help.
Here’s what you can do to get involved and have your question answered in next week’s post:
- Ask questions. Post them in the comments below or Tweet them to me @JustinBennettFX
- Help me answer questions. If I missed something or if you have something to add, don’t hesitate to leave a comment below.
Wow!! Thanks Justin
This will certainly help. Much appreciated. I’ve been a victim of FOMO once too often.
Cheers, Brian. The fear of missing out is something all traders have to overcome. It isn’t easy, but it is possible.
Thank you sincerely for your lectures. Kindly give me an idea how I can determine the direction of the market at the beginning of London open everyday for. EUR/USD, GBP/USD, AUD/USD, USD/CHF, USD/CAD pairs etc. I mean how can I determine the highest probability to enable me set the trade and forget for the day. Kindly help.
Solomon, I don’t trade based on the various sessions/markets, so I wouldn’t be able to write a post on the subject.
This is wonderful! Thanks Justin.
You’re very welcome.
I found this Subject of “How to track and make progress as a trader” an extremely Important point and one which I will remember and act upon.
Pleased you enjoyed it, Carol.
My problem is..I always have open multiple trade..but seen like one step forward two step back…no much profit all the time..very frustrating…can you give me some opinion? Thanks..
Alex, choose one or two strategies and focus all your attention on them. Maintain no more than one open position and aim to take just on favorable setup each week. You’ll be surprised how a minimalist approach like that will improve your performance.
Hi is the fibo extension works that i can trust ?
Hi Kostas, I don’t use Fibonacci extensions.
Confused. In ur notes above you labeled this a loss, yet the screenshot and the exit register Profit. What am I missing?
You’re not missing anything. It’s just a mistake in the selection. Thanks for catching that. Cheers.
Sir i want to know about gbpcad pair analysis
I only comment on currency pairs if I see something worthwhile.
Very intersting i will begin to maitain a trading journal since to day i ask you to allow me to copy your pattern journal i will do it on excel but i don’t know if it’s possible for me to copy charts from platform to excel TANK YOU very much JUSTIN
You’re welcome, Mustapha.
There’s never a boring article with JB,you always wants to see the end of the article,thanks again and again
When you are writing about risk and reward you wrote the planned risk reward( must be above 3R) do you mean for a risk of 1 you should at least have a reward of 3.
Correct. A 3R minimum means that if you’re risking 100 pips, the target should be at least 300 pips away from the entry.
hi Justin ,i was on your webinar and my internet cut out with about 5 mins to go what was the offer you present at the end please
Hi Dave, I believe I already responded to your email.
Which metrics should I use to track trading data. How can I create charts to visualize my data better? Thanks