Taxonomy

One of the more important changes I've made in recent weeks has been a newfound emphasis on accounting and accountability -- focusing not on the nominal peaks and valleys of equity, but rather the exact source of each profit and loss. Where an obsessiveness of the former (goalsetting and the like) has always been detrimental to my subsequent performance, the classification and post-mortem analysis of each trade is a basic process I've long been guilty of ignoring. But no surprise there -- a lack of desire or unwillingness to document, reflect, and dissect one's trading is a big symptom of having no edge. Optimistically, I hope this newfound interest in taxonomy serves as both expeditor and evidence of foward movement.

I've broken down all my trades into separate categories based upon origin of entry, ordered by time frame -- not so much the prospective length of each trade, but rather how much time prior to entry I first conceived the idea for the trade. On one end of the spectrum are multi-day setups which have explicit entries based upon a forthcoming trigger -- a chart line, news release, price point, etc; the opposite end is simply labeled "Intraday", for all trade ideas and executions made within the same session. By getting into the habit of classifying each and every trade, I now anticipate which category a trade will fit into even before I pull the trigger, and this helps greatly in determining how I perceive and manage the trade after entry. For example, the trades that fall within the longest time category in terms of planning are given the biggest allowances in terms of risk parameters, pyramiding, and profit targeting; decisions to add/subtract/exit will only be made on an hourly or daily time-frame, while tick-for-tick tape reading is to be avoided. In contrast, virtually all intraday trades will employ trailing stops with extreme aversion to sitting through pullbacks; they are also prohibited from having their profit targets subsequently expanded to accomodate a larger time frame.

With detailed classification, it becomes much easier to break down performance over time and reveal the nature of holes that need plugging (Poker Tracker fans will yawn). So far, what I've discovered is that I've been far too tight in terms of profit management on my longest-term trades, while "Intraday" is on the fast-track for being re-christened "Potluck" or worse. I am now far more hesitant to pull the trigger on the spur of the moment, and am able to more quickly divest myself of any mental commitment to those sub-par setups.

Progress

No matter how far a trader may think he's progressed in his education, the market has an uncanny way of exposing whatever weaknesses that remain, as a reminder of just how much further he needs to go. As relentless and withering such an education can be, I think we need to be grateful for how quickly our imperfections are brought to the surface through the process of trading, and to embrace the fact that until each and every hole in our game is plugged, any profits that we presently accrue should be considered only a temporary loan to be repaid upon delivery of future lessons. Sounds like some clever rationalization of a trader who's just about reached the limits of frustration, doesn't it? Perhaps, but I'll allow myself the liberty of such a notion because I also happen to believe it's the damned truth.

In review, there's no question I've made more progress these past few months than I have in the past 3 years as far as edge is concerned -- I believe I've finally achieved an understanding as to what constitutes an edge in today's markets, and have accepted and embraced that challenge and all it entails. When it comes to recognizing optimal opportunities in opening a position, I feel my initial entries are almost as good as they are going to get. As regards to recognizing when not to take a trade -- well, that part of the equation still needs alot of work *grin*. Logically, I just need to convince myself that premium setups, although rare, are all that are needed for continued success; until that is done, I will likely continue to bleed off what profits I may have bit by bit, here and there before I finally determine what exactly constitutes "premium", and decide once and for all to eschew anything else.

In terms of exits, losing positions thankfully don't have much of a shelf life anymore, and I've also gained some ground in the willingness to re-enter trades that I've just stopped out of a few moments earlier, so long as I feel the position is the correct one. As for managing and exiting profitable positions, I've only just realized how deficient I am in this arena, being relatively inexperienced with trading longer time-frames. Despite catching a number of major turns in several markets these past few months, my account equity has little to show for the effort due to extraordinarily sloppy trade management. Out of this frustration, I've finally concocted a framework of trailing stops which I'm eager to implement upon my next trade; it's a form of systemized compromise that I've deemed necessary for the health of both my account and mental well-being.

Finally, as for those "psychological" tendencies that have proved my undoing in the past, they still linger like a twitch in my bones, as if subcutaneous scars reminding me of past misdeeds. But their damage to my bottom line has been greatly minimized, mostly due to early recognition and short-circuiting of situations and emotional patterns which serve as all-too-familiar warning signs. A growing understanding and appreciation of patience has been the primary driver in my progress within this area, and the more I learn to embrace its virtues, the more optimistic I become about advancement in all other aspects of the game.