The Importance of Analyzing Your Trades

In the machine learning market environment, trading algorithms are improving daily. Traders must constantly analyze their trades in order to stay ahead of the machines. Introspection and genuflection should be administered in an objective clinical manner with both winning and losing trades. Just like the morning preparation of the watch list, traders should also include a debriefing period after the trading day to analyze their activity.

Analyze Winners as Much as Losing Trades

Traders tend to analyze losing trades more often than winning trades. It is very important to analyze both your winning trades and losing trades. The proper and objective analysis will help prepare you for improvement as well as optimize your strategy. Analysis involves extra legwork but can pay off in the long run. Effective trading is enabled through proper preparation before and after the trade. Complacency is deadly sin for traders.

Keeping Track of Trades


Trading Journal

A trading journal is your own novel with each trading day recorded as a story. The story of your trading day has a beginning (pre-market preparation), middle (trading day) and ending (analysis and research). Whether your trading day is 30 minutes or 8 hours, your trading journal should still consist of the three parts.

A notebook or three-ring binder works great. Combine the morning watch list notes along with the trading journal for each day. This provides a comprehensive record of stocks you were watching and actually trading. It enables you to quickly replay what happened on any given trading day at a glance

trading journal

Going Through Your Trades

You can scan through your trades to classify them by profit/loss, stock or set-up. The journal shouldn’t be a tedious undertaking. The amount of details to include is naturally up to you. Your trading statements will have a record of your trades so you can scan through those or through your daily blotter. The goal of analysis is to identify trends, patterns, strengths and weaknesses within your own trading in the context of the current market environment. Sometimes, maladies stem from the right style in the wrong market and vice versa. Ultimately, you will want to galvanize your strengths and shore up the weaknesses by identifying the best combination of factors that work consistently for you.

What To Look For With Your Trades

As you make notes in your trading journal, these are the specific factors that have the most material impact on your trades. Be specific as to how each of the factors may have applied to your trades. You can segment the notes by stock, time period or set-up. Be prudent in noting how each of these factors impact your trading results for both winning and losing trades.

things to look for analyzing trades

Stock Price

How well do you trade stocks in the $5 to $10 range compared to stocks in the $50s range and stocks around and above $100? Are you adapting to the difference in price range, trading rhythm and widening spreads as you trade more expensive stocks? It is common for traders that normally trade $30 stocks to panic out too quickly when they trade a $100 stock because they are still applying the same tight stops they would for a cheaper stock. Identify if this is something that is happening regularly.

Lower priced stocks can be too tempting for many traders and should be avoided. The cheap prices allow for much greater leverage, which cuts both ways. Since newbies tend to focus on the profit they can make with stocks under $5, they often underestimate how fast their accounts can drop if the trade goes the wrong way. A trader that usually trades 1,000 shares on a $20 stock regularly for 20-cent scalps might be tempted to take 10,000 shares on a $4.50 stock. To his bewilderment, the shock of a – 20-cent drop resulting in a – $2,500 loss can quickly cause him to revenge trade, over leverage or freeze up. Even worse, a short-squeeze can easily result in an intra-day forced liquidation margin call at the worst possible price.

Time of Day

The typical trading day can be segmented into seven period: pre-market period is 4am- 9:30am est., opening hour is from 9:30am to 10:30am, mid-morning 10:30am to 12pm, mid-day 12pm to 1:30pm, early afternoon 1:30-3pm, last hour 3pm-4pm, post-market 4:01pm-8pm. Determine which trading periods are your best and worst. Do you make your profits in the opening hour, but tend to give them back during the mid-day? Which time periods do you have the most consistent success? Which periods are your weakest? This alone tells you where you should concentrate your trading activity.

Days of the Week

The stock market trading week starts on Monday and ends on Friday. Which days tend to be your strongest days and which are the weakest days in terms of profit/loss? Typical Mondays can be affected by events that happen over the weekend or be lackluster due to slow news flow. Tuesday through Wednesday tend to generate the most action as press releases and earnings reports are reported in bulk during this period. Market volume tends to lighten up dramatically on Fridays. If you find that Mondays and Fridays are your weakest trading days, the thinning volume and liquidity may be the key factors.

Shorts Versus Longs

Compare the results of your long only trades and short-sell trades. What is the long to short-sell ratio and the win rate? Do you have more success playing the long side or the short side on trades? Are you taking wider stops on shorts and smaller profits on longs? Sift through the data and determine the various patterns in your trading. Most traders tend to favor the long side compared to short-selling stocks. Does this apply to your own trades as well?

shorts vs longs

Holding Period

Does your trading style favor intra-day or swing trading? Which holding period are you most comfortable with and find the most success with? If it is intra-day, do you have more winners with a scalping style that aims for small profits $0.05 to $.25 trade gains or stops with typical holding times ranging from less than a minute to 15 minutes? Do you have more success holding for an hour or more? Narrow down to which time frames work best for you. Scalping styles tend to utilize the smaller time frame charts ranging from 1-minute to 5-minutes. Holding periods ranging up to an hour or more then to favor the 5-minute to 60-minute charts. Wider time frames have larger price ranges, which mean the position size must be adjusted to temper the bigger wiggles.


Set-ups can be categorized as trend or counter trend patterns. Breakouts and uptrends or breakdown and downtrends assume you are trading with the direction of the immediate trend. Countertrend set-ups are used to play reversions and reversals. What is your ratio of trend versus countertrend trades? What is the success rate for both? As for specific set-ups within the two types of patterns, which is your most effective your set-ups? Use this to determine your bread-and-butter set-ups and the context in which they have the highest probability of success (IE: bull flags during the opening hours).

Sectors and Industries

Stocks are segmented into specific sectors and industries within those sectors. The leaders at the top attract the most money flow as it trickles down depending on the strength of weakness of the group. Which sector do you tend to make the best trades in consistently? Sectors including technology, healthcare, oil and gas, financials, retailers, utilities, consumer products, biotechnology and real estate are the more active ones. Make sure to note which sectors your most profitable in and which ones are the worst for you. Peer stocks within a sector tend to trade very closely in terms of rhythm and inflection points; therefore it is prudent to stay away from a sector that consistently causes you to lose money.

Position Sizing

Position size makes the most material impact on your account. The most important thing is to be aware of your own comfort level when it comes to size. Analyze where you make the most price gains and the average size of the shares traded. Do the same with losing traders and the average size. If you trade larger size too quickly, it can make you panic at times you normally wouldn’t blink with a small sized position. This causes a lot of slippage in your account. Determine what your most comfortable max size and minimum size for your profitable trades and losing trades. Everyone has a size level that is comfortable to them, which allows them to focus on the chart and not the money. This is what has to be discovered and only increase size incrementally in time.

Size of Winners Versus Losers

How large are the positions on your winners and losers? Do you losing trades tend to happen when using larger position sizes? Do you tend to have more winning trades when the size is smaller? This tells you to trim your size so the trades are better managed. Increasing size too quickly has a material impact on your psyche. It happens to everyone.

calculating net profitability


Are you a more effective trader when the underlying stock has some fundamental catalyst like an earning report, material news or rumor? Stocks with a catalyst often start the day with a gap up or down in price. Do you tend to trade those more than a core basket of stocks daily? What is your win/loss ratio on these stocks? Naturally, if your losers are larger than winner, then trim down on the gappers and focus more on a core set of basket stocks that you are more familiar and comfortable with.

Applying the Data

As you analyze your trades, ultimately you will come to several conclusions. Remember the name of the game is efficiency. You want to identify where your weakness are try to shore them up by focusing more on your strengths. This applies to all the aforementioned factors.

Identify and Adapt

You should identify the factors that are most favorable for you and try to stick with those until conditions warrant a shift. Avoid the conditions that are worst for your, like trading thin liquidity periods like mid-day.

Sample Data-Based Template

Devise a template based on your data to follow. For example, you may find that your best trades come from playing catalyst stocks Tuesday through Thursday with an average sizing of 1,000 shares and a price range of $35-$55 in the technology sector. The best set-up may be playing reversions to enter the existing trend around the 10am est. time frame as you average a 20-cent profit on scalps 70% of the times. This should be backed by your trade data. Work on adapting behavior to sticking to this template for what has worked for you.