Do you know what your profit factor is? How about your average holding time? Ok, let’s simplify. Do you know what your win rate is? How about the average hold time of your wins vs. your losses? There was a time when I knew none of these statistics. I was content to trade by the seat of my pants and let my account value tell me what the final score was. When the total was growing, it meant I was hitting the trades right. When it was declining, trades weren’t clicking as well. Beyond that, I didn’t drill down into the specifics of my trading. That is until I gave Trademetria a try. (Note: we have no affiliation with Trademetria, and only receive a small referral fee on those that subscribe to a paid subscription through our link.)

Suddenly, I was watching my positions much more closely. I was quick to cut a winner that was about to turn into a loser so that I could keep my win/loss ratio high. I was able to compare the size of my wins vs my losses over a period of many trades, so I could see if my target and stops needed tweaking. I became more picky, not wanting to hurt my trade stats on a shaky setup. In short, I became a better trader by keeping a journal of my trades. And I’m not alone in my result. This study (admittedly by the company itself) shows a similar result to what I experienced.

Trademetria makes the process easy, too. You can import your trades easily and they give specific instructions on how to do so for just about every major brokerage. Here’s a look at the import page with instructions for Tastyworks.

tmetria

You see, part of trading is taking losses. I liken trading to planting a garden. Assume you had a handful of random seeds but didn’t know for sure what the seeds were. One way to identify them would be to plant them and see what sprouts. If a vegetable sprouts, nurture it with water, but if it’s a weed, pull it without a second thought. Keep the weeds out and let the plants grow, and a trader with a competent system can expect a decent harvest in time. But it’s easy to get too comfortable with weeds. Pulling out the weeds before they grow and choke out the vegetables is important, but so is starting with the correct soil. Likewise, with trading, we want market conditions to be conducive to our expectations. Losses are part of trading, but unnecessary losses hurt your overall performance.

That’s where journaling comes in. Keeping a journal is like checking a rogue seed against a list of known plants to see if it resembles something desirable before taking the time to plant it. By having to write down the reason for the trade, a journal acts as a coach in that it points out trading flaws that you otherwise may overlook. The more data you record, the more careful you tend to be with what trades you take. A journal doesn’t have to be complicated. You can record your buy and sell prices in a notebook or create a simple spreadsheet. You will also want to record your stop and target prices, as well as the reason for entering the trade. If you want more robust data, then you’ll want to check out a paid service such as Trademetria. Trademetria does a bunch of voodoo magic behind the scenes. All you do is put in your trades as you make them (or import them as a file from the broker), and it kicks out reports that make you look like a pro. Anything that helps you analyze your technique is bound to shine a light on trading mistakes you may be repeating. Knowing your stats is vital to knowing your strengths and weaknesses as a trader.

Below is an example of their Key Metrics Reports page. I have found many of the ratios to be helpful, but what I’ve found most useful is the profit factor. The profit factor is the ratio of the size of the wins vs the losses. A profit factor of three means the wins are three times the size of the losses on average. Since I try to find trades that have a 3 to 1 reward to risk ratio, this is a great way to see if my projections match reality or if I need to adjust my targets lower. I also keep an eye on my worst loss. Remember, keep the losses small. Having my worst loss on the front page for me to see keeps me focused on not letting any losses exceed my stop.

trademetria

For me and my slacker schedule, it is worth the small fee to have all of my key data recorded and available for me to analyze on a regular basis. It didn’t even take a week for Trademetria to pay for itself by keeping me focused on my results and avoiding some losses I otherwise would have taken through inattention. Trademetria offers a free plan for those that rarely trade, and charges a nominal fee for intermediate and professional traders who import more than 30 trades per month.

You can learn more about Trademetria.  Whatever journal system you decide to use, having to write down why you are entering a trade will make you a stronger trader. If your experience is like mine, a journal is a tool that will more than pay for itself.