Michael suggests some ideas to look at in an annual trading review.
Five years ago, we had no idea of what was about to come.
Whispers of a new virus in December. Mildly interested chatter in January. Concern creeping in at the start of February, yet markets powered higher even though the virus swept into Italy.
Then one day the FTSE 100 cratered, and that was that. A crazy fall in stock prices that was reversed less than six weeks later by the announcement of lockdown in the UK.
Furlough came, rates were dropped to almost zero, and money was printed.
Asset prices rocketed with stocks pumping higher, properties receiving several offers over the asking price, and people didn’t know what to do with their extra wealth so they gambled and frittered it away on stocks, garden furniture, and anything else they could buy online.
Then came the hangover. The S&P 500 put in a closing high on 3 January 2022, Russia invaded Ukraine, and rates were ratcheted up. Everyone’s money that was supposed to last them through the bad times had gone and the Cost Of Living Crisis started to bite.
And so, three years of market malaise has followed, with some individual stock outperformances and pockets of irrational exuberance in between.
When Fartcoin hits $1 billion in market cap, you know something’s up.
However, the crypto exuberance has failed to transfer across to UK stocks.
And whilst I’m optimistic of a better 2025 – who knows? Not me.
Trump will be the new incoming President. And regardless of your feelings towards him, his presidency will likely not be boring. There will be volatility and then some.
And so, with this being my final article of 2024, I think it makes sense to have a timely reminder for review, as it’s an opportune moment for traders to reflect on their trading strategies and performance.
An annual review is a crucial practice that can significantly enhance your trading success.
Trading is a performance business, and by systematically evaluating your trades and strategies, you can identify strengths, uncover weaknesses, and make informed adjustments for the upcoming year. Unlike the ten mince pies you may fall asleep after, do not sleep on conducing your annual review.
If we’ve seen anything over the last five years, markets are not predictable. They change, and the trader must adapt. If you don’t – you end up being liquidity food and are subsequently removed from the market.
What worked well this year may not be as effective next year. Therefore, conducting an annual review allows you to:
- Assess your performance: Evaluate your overall profitability, win-loss ratio, and return on investment. This assessment helps determine whether your trading activities are meeting your financial goals.
- Identify emotional patterns or behaviours: Analyse your trades to spot recurring patterns or behaviours, both positive and negative. Recognising these patterns enables you to reinforce beneficial habits and address detrimental ones.
- Enhance risk management: Reviewing your trades provides insights into your risk management practices. It allows you to assess whether you’re effectively protecting your capital or exposing yourself to unnecessary risks. Your sole focus as a trader is to cover your downside.
- Set Goals for Improvement: Based on your review, you can set specific, measurable, achievable, relevant, and time-bound (SMART) goals for the next year, fostering continuous growth and development as a trader.
Your trading journal
Your trading journal is rich in data. It tells you everything you need to improve your P&L.
If you don’t have one, consider collecting these data points:
- Entry points
- Exit points
- Position sizes
- Reasons for taking the trade
- Emotions during the trade
- Outcome and result compared to plan
- What happens a month after you close
You can then look at your Win-Loss ratio, your average profit/loss per trade, expectancy, maximum drawdown.
If you know this then you’re ahead of most traders in the business.
Look at your largest losers. Why did these happen?
Look at your biggest winners. Are there any commonalities?
Did poor risk management lead to significant losses? How can you prevent this from happening in future? Then once you’ve worked it out – actually do it.
It’s no use saying “I took too big a position” if you don’t put in a rule to stop that happening again.
Remember, capital drawdowns work against traders exponentially.
Your psychological discipline
You’ll have no doubt heard many traders talking about the importance of psychology. Don’t take it lightly. I did and paid the price for it.
You need to have a healthy risk appetite, but not too aggressive.
You need to be comfortable taking losses, but not fully dismissive so you learn nothing.
If greed, fear, or overconfidence are affecting you, then you may need to position size less and get into the habit of taking trades more often in line with your plan.
Be clear on next year’s goals
Do not set a P&L target. This will make you trade your P&L.
Instead, come up with a repeatable structure that you can stick to. Time that allows you to trade but also generate new ideas comfortably as well as time to research those ideas and improve.
Time spent with your journal is never wasted.
May I take this opportunity to wish you a happy festive period, and here’s to a great start for 2025.
There is a lot to learn, about markets, stocks, and even ourselves. It feels to me like I’m still just getting started, even after I marked my eighth year of doing this for a living a few weeks ago. That’s what makes it exciting.
Until next year!
Michael Taylor
Get Michael’s trade ideas: https://newsletter.buythebullmarket.com/
