Adding Edge with an Annual Review w/ Dave_G
The end of the year can be a time that’s both stressful and beneficial. In my state, property taxes are due in December. If you’re a business owner, quarterly taxes are due January 15th. It’s also a time for reflecting on the past year, and it can be filled with hope for the new year. Did you achieve any goals? Did you lose a loved one? Did you, your spouse or kids have any major achievements?
For me, it’s important to take a little time and reflect on the past year. I recommend really doing it. Go to a quiet room in your house, a favorite spot in the woods, a city park, or somewhere where there are not many distractions. Just you and your thoughts for a few hours. And for traders, it’s time to produce an annual performance review. The importance of a trader’s annual review can’t be overstated.
An annual review doesn’t have to be long or overly complicated. It can be as simple as making a spreadsheet with your yearly trading stats, totals, and jotting down a few thoughts on the year from your journal. (Yes, you should be keeping a daily trading and psych journal). As with many things in life though, the deeper you go, the more you will learn. I recommend including your trading stats, your previous year’s goals, did you achieve them? I also recommend including your goals for the new year and a deeper dive into your trading statistics. Which setup had the highest expectancy for the previous year? Were you consistently getting stopped to the tick? Does your stop need to be larger? Were you consistently leaving ticks/points on the table? What is your best or worst day of the week? Is there a time frame where you are consistently underperforming or overperforming?
In 2023, I had the worst year I’ve ever had in trading. I was absolutely dreading doing my annual review. I had terrible P&L for the year and was feeling very pessimistic about trading in general. As I delved into the review of my performance, I discovered that while the P&L was poor, I had made incredible progress on the mental/psychological side. I had made massive progress on my largest issue, risk aversion. I had purchased, read, and implemented the exercises in Jared Tendler’s book, The Mental Game of Trading. It was a grind at first, but very soon the exercises became intuitive. So much so that I didn’t realize the progress I had made until reviewing at the end of the year. I had less fear in general, and execution had improved as a result. Again, I would have never recognized this progress had I not done an annual review.
“I had less fear in general, and execution had improved as a result. Again, I would have never recognized this progress had I not done an annual review. “
– Dave_G
By taking a deeper dive into my 2023 trading statistics and breaking down my trading setups by expectancy per setup, I also realized that out of my five trading setups, two of them had way higher expectancy than the others. This proved to be incredibly valuable information. I eliminated the three setups that were not working, and I concentrated more in 2024 on the two setups that were performing well. If you do nothing else, definitely do this. Figure out what setups are not working, and eliminate them.
Another benefit of performing an annual report is keeping track of and examining your trading errors. You should be tracking these in your trading statistics sheet. Were you missing or intentionally not taking legitimate setups? Were you making mechanical errors? Were you breaking your trading rules? In 2023, I realized I was making a lot of “rule breaking” errors. So, I made this a goal in 2024. Reducing errors is a constant goal of mine, but with the annual review I was able to specifically concentrate on this particular error. Attack and destroy it. The result in 2024 was a significant reduction in this error. Nine instances of rule breaking errors in 2023 to one instance in 2024.
So, what are the results of all of this you may be asking. I believe doing an annual review gets you more in tune with your trading and where you may be performing well, or underperforming. You become more familiar with your game, which is absolutely key in trading. It’s imperative that you know under which circumstances you perform well, and when you perform poorly. In a nutshell, it helps you hone your edge. For me personally, I finished my 2023 trading review with a feeling of optimism, even though I was very pessimistic when starting it. It made me zoom out and take a 30,000-foot view rather than being caught up in the minutia of my trading. I failed to see any of my progress during the 2023 trading year until I did my annual review and saw how much I had improved on the psychological side.
Working toward the goal of consistent profitability in trading is a lot of work, but sometimes it’s difficult to know what kind of work. Difficult to know if you’re focusing on the right things. I firmly believe that an annual trading performance review is the right kind of work. The result for me was my first year of consistency. Slow, steady, deliberate rise in my expectancy to end the year in profit. I believe my annual review played a key role in this.
Dave_G
CT Member