Performing post-trade analysis is one of the most overlooked and under utilized steps by investors. Just as a pro sports team might "review the tape" to see where they can improve, recapping trades to break down how they went right or wrong will help prevent future mistakes and improve returns down the road.
For those investors who do conduct recaps of their trades, one of the common mistakes often made is only doing post-analysis on losers. This is a mistake. Every trade has something to offer and winners can sometimes be even more educational than losers.
Who, What, When, Where, Why
When looking back at past trades, consider all angles:
You are responsible for your portfolio. If you find yourself saying, "this is that trade Joe told me to do...", then you are already off on the wrong foot. How can you be successful if you are not learning as you go?
These are the nitty gritty facts about the trade which includes, but are certainly not limited to:
- Stock + ticker
- Industry Group and/or Sector
- Purchase price/s
- Strategy used
- Profit/loss breakdown
This is the date you made the trade, any subsequent purchases, and thereafter any sales. For those day trading, this can get far more advanced by looking at hours, minutes, and seconds. A full-time day trader I know tracks his trade times so in depth that he knows, by the hour, which time of day he is most profitable. Talk about effective trading!
Not as relevant as the other "W"s, but where was the trade made can also be important. Were you at home or mobile trading while out of town or on vacation? Track this data point and you may, for example, find that you have a habit of making poor trades while on vacation.
This is your detailed trade overview of what you were thinking when you made the trade initially. The more detailed you are, the better. If possible, also note your emotions. In the end, successful traders are emotionless, and if you sold too early because of nerves, then there is room for improvement.
Steps to a Proper Recap
To get the most out of your trade recaps, follow these steps which begin as soon as you are done with your trade:
- Update your trade journal and/or excel sheet with the final trade details. Your excel sheet should include everything listed above and ultimately spit out your end profit or loss alongside your % return.
- Pull up a stock chart of the security and take a screenshot with the relevant time frame (day traders should use intraday charts, swing traders daily charts, etc. If you are a long term investor, then perhaps a daily and a weekly chart will be useful (I almost always grab both).
- Open up your chart in Microsoft paint and draw in any pertinent technical analysis with buy points. Using paint, type in your trade notes. Referring to the "Why" above, this is a great place to put this information.
- Reflect and tweak your trade rules. Knowing what you did right and wrong, you can now refer to your trade rules and see if or where you slacked off. This reflection will bring flaws in your style to light and you will be better prepared next time around. This is also a good opportunity to update, add, or remove any rules.
- Archive for later use. Once you have reviewed the trade start to finish and gone through the motions of a proper recap, save your excel sheet and move your stock chart screenshot with notes to your trade recaps folder on your computer.