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c11 JWBK182-McDowell April 25, 2008 16:14 Printer: Yet to come
92 A TRADER’S MONEY MANAGEMENT SYSTEM4.You can recognizetruewinning behavior, as opposed toperceivedwin-
ning behavior, more quickly so you can take action and duplicate your
winning behaviors and techniques going forward.
5.The possibility of denial in trading psychology is reduced, and the over-
all psychology is improved.
6.Good record keeping provides a constant barometer of current vital
statistics, such as your win ratio and payoff ratio, so you can deter-
mine the percent of risk you can allow on each trade to avoid the risk
of ruin.
7.Thorough records for tax preparation are at your fingertips.
8.It establishes professionalism and commitment.
9.You can recognize trading errors and implement procedures to reduce
the chance of repeating them in the future.
10.You can increase your control (both perceived and real) over your trad-
ing destiny—it is far better psychologically to be in the driver’s seat and
have the feeling of control over your future.AN APPLE A DAY (OR ANALYSIS
EVERY DAY) KEEPS THE TRADING
DOCTOR AWAYIt probably seems obvious that there are benefits to record keeping of
some type or another. Let’s define theregularityof the record keeping
that we’re suggesting, so that you do not misunderstand the concepts
discussed.
To pull your trading records and a calculator together once a month
(or even once a week) to determine how your return on investment (ROI)
is doing isnotwhat I want you to do. The plan here is to take inven-
toryeverysingle active trading day from this day forward. Then the goal
is to have the discipline to consistently conduct your analysiseveryday
going forward so that you can keep the doctor away. This requires that
you make the commitment right here and right now to develop your
self-awareness.
The value of self awareness by means of your record keeping is that
you cannot live in a comfortable state ofdenialwhen you are losing money
in your trading. It is easy to avoid unpleasant truths when you do not run
the numbers every day. You may suspect that one trade or another may
have been handled incorrectly, but until you do the analysis it is all too
easy to ignore your mistakes. Awareness of your mistakes and what caused
them is what will make you a more profitable trader.