Tuesday 1 January 2008

Trading Psychology and New Year's Resolutions

Happy New Year and I hope you're enjoying this break from trading. Just a quick post today about my end-of-year routine and New Year resolutions.

New Year's day is usually a quiet day and I take the opportunity to do 3 things:

  • Update my Net Worth spreadsheet
  • Go through my trading log and set a goal or resolution for the New Year, and
  • Decide on vacation destinations with my wife

Net Worth

I've kept a detailed spreadsheet of my net worth for the past 12 years. Sounds anal I know. In years gone by, I tracked all my daily expenditure as well as closing share prices of investments held. On any given day I could tell you my net worth almost to the dollar! These days I've mellowed and am happy to live with a more intuitive feel for incomings and outgoings.

However, at the end of each year I still take the time to update my net worth spreadsheet. It doesn't take long. I log into online accounts to check bank account, trading account and credit card balances. Then assess the current value of property and add any major asset purchases (or write-downs) made during the year. The end result in always enlightening, particularly because I track where the gains and losses have been made.

Over the years, what I've found is that my net worth will stay at similar levels for maybe 2 or 3 years and then take a step jump or two. I've never gone backwards, but each year there's always a lesson to be learned.

Trading Log

Since I started trading I've always kept a trading log. In the early years the log just recorded the result of each trade - mostly swing trades and so not too difficult. I then started to keep more detailed notes about lessons learned from each trade, how I felt about the trade, what to remember for next time. Frankly, this became too onerous and I hardly ever reviewed the log.

These days I keep it more simple. I record the daily total of my day trades (total points, total $ after brokerage, number of trades and number of contracts) and also keep track of my swing trades. Then each day I note whether I made any mistakes - moving profit targets, ignoring signals, not waiting for confirmation. You know the kind of thing!

I track it all in a spreadsheet with 1 line for each day. The trading errors are noted as crosses in a column and I have a column for each of my error types. Then at the end of each year it's pretty straightforward to see total performance and what errors I'm making.

This year I've been trying to pick tops and bottoms, entering too early and as a consequence trading against the trend. So my New Year's resolution is to focus on this - become more patient, wait for confirmation, trade the end of a trend.

Vacations

And lastly, my wife and I plan our vacations for the year. We travel as much as we can and even go on business trips together. With high-speed, wireless internet connections becoming the standard, trading from anywhere in the world has really become practical. Best of all, we always have something to look forward to.

Good luck with your trading and keeping your resolutions in the New Year.

Filed Under Trading Psychology

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