Reversion To The …. Blown Account

The markets have been trending nicely of late and one could argue it has been since the beginning of the year. For those who aspire to use the most over-hyped phrase in trading, ‘the trend is your friend’, the markets have provided some interesting trading opportunities, even if you couldn’t catch them all.

On the other hand, different trading styles are having a tough time of late. Strategies using a ‘reversion to the mean’ concept can at times be like trying to catch a falling knife.  Day traders using tools such as Bollinger bands, keltner channels and even some market profile concepts are finding winning trades to be a tough go. These methodologies that some diehards claim to be an ATM machine during summer doldrums or December holidays are finding it frustrating of late and landing continuous stop-losses due to a failure of price to reverse.

The challenge I see when mentoring traders is their inability to identify the type of market as well as  adjust their trading style when they do recognize them. Traders tend to be loyal to their strategies; just like a dog to their master. Why not? These methodologies have proven beneficial to them over time. Continue reading "Reversion To The …. Blown Account"

The Most Important Trading Metric: Compliance

For the risk-based trader, compliance — not profits and losses — is the most important metric to track. Compliance simply asks the question, “Have I followed my rules on this trade?” For example, measuring trade-execution compliance will identify the gap between planned trade execution and actual trade execution. In other words, answer the question of whether the trade should have been executed in the first place, and if so, whether you did it correctly.”

Measuring compliance doesn’t have to be a complicated process. Displaying a dashboard-like visual on your workstation is simple way to keep track of the important trade metrics you need to assess. The example in the chart below shows a standard “compliance dashboard.” Notice how the tool displays only key compliance metrics — setup compliance, entry precision, filter/conditional rules, daily loss-limit compliance, and journal review compliance. Such key performance indicators (KPIs) should be measured against benchmarks that reflect a standard of excellence or a personal trading goal.  Aggressive traders can raise the expectation bar by setting benchmarks that exceed compliance. Continue reading "The Most Important Trading Metric: Compliance"