In a perfect world, we all would be making optimal trading decisions all the time and if we still ended up with a losing trade when a setup failed, we would just shake it off and wait for the next signal unfazed. Of course, that’s not what usually happens.
Influenced by past results
After a loss, traders often get too scared and reduce their position size because they don’t want to lose more, or they increase their size because they want to catch up and recover from the loss faster. Losing confidence, entering trades too late, chasing price, mismanaging trades or completely abandoning all trading rules is also common behavior after a loss.
Especially when starting the trading day or week with a losing trade, some traders are completely caught off guard and then act from a reactionary state of mind instead of being in control and trading their trading plan.
You can see the same effect after winning trades. Traders get over-confident, they increase their size because they feel great and invincible and they take random trades because they think they can “feel” what is happening next.
Implementing a Custom Statistic
To find out how your performance is being influenced by your past trades, you can use a Custom Statistic in Edgewonk and add the following parameters:
| Custom Statistic – Past Trades |
| First trade a loss |
| First trade a winner |
| Down on the week |
| Missed trade previously |
| Previous loss – Position too big |
| Previous loss – Position too small |
| Previous loss – no rules |
| Previous winners – Position too big |
| Previous winner – No rules |
The first four Custom Statistics (marked in blue) are more general and ideal for the trader who just wants to get a feeling for how his past trades influence his current decisions.
The last five Custom Statistics offer more in-depth insights into your performance for those that aspire a much deeper level of understanding. Those Custom Statistics will show you quickly how you can handle emotional pressure and how your past performance is influencing your current trading decisions. Then, after discovering your weaknesses and when you make the best/worst trading decisions, you can proactively control the situation when you find yourself in a scenario where you don’t have an edge.
You can also take at an earlier article where we compiled a list with 11 examples of Custom Statistics some of our users send us.
Tip: It is recommended to check your Tiltmeter and your past trading behavior on a daily and weekly basis. Simply review your most recent Tiltmeter development and evaluate the comments, tags and Custom Statistics you have assigned to your trades. If you see patterns and negative comments coming up repeatedly, write them down on a Post-It and put it next to your monitor as a constant reminder. This might sound odd, but you’ll see the impact it will have quickly.