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.