In today’s newsletter, I’ll address the most common mindset that traders have and why that mindset is the exact thing holding them back.
When the market closes and you’re done making trades, how you reflect on your trading day is a crucial part of continuously improving as a trader.
Most traders measure their success by simply glancing at their P&L in their trading platform. If they made money – great! If they lost money – bad!
I’m not denying that the goal of trading ultimately is to make money, but using P&L every day as a measure of success is the wrong mindset to have.
Here’s why.
Your daily P&L number hides many of the details of your performance that will help you improve. Only reflecting on the overall P&L causes you to miss all those crucial details.
Here’s a great example. A few days ago I ended the trading day with an above average overall loss.
And yet I was as optimistic about my trading as I’d been in months.
How could that be?
Well, one of my most mature trading strategies had a losing day. Because that strategy has performed so well for so long now, I trade it with a lot of size.
A modest loss for that strategy is significant in comparison to other strategies I haven’t sized up that large yet.
So why was I so optimistic at the end of that day?
A new trading strategy I just started putting to work had an excellent day even though the size I’m using with it was small.
It had started proving itself in the real world. I had evidence that I’d be able to scale that strategy up and soon THAT would be a strategy contributing significantly to my daily P&L.
If I had looked at P&L alone, I would have missed this optimistic part of the trading day.
If P&L isn’t a great measure, what is?
The question you should be asking yourself at the end of the trading day:
Did I follow my rules?
If you did, then the day was a success and you should be pleased no matter what your P&L happened to be.
If you didn’t follow your rules, then you’ve got some work to do.
This is a far better mindset to have for the following reasons:
- It forces you to clearly define what your rules are
- It allows you to evaluate yourself in terms of what will impact your long term success
- It creates optimism where there would otherwise be negativity
You should be shooting for profitable months, years, and decades.
This is the mindset that will bring those about, not whether any particular day is profitable.
Try this in your trading day reflection and let me know what you think.
