Trading in the volatile forex market requires a set of skills, which includes the ability to analyze, interpret and anticipate to make calculated moves based on the potential price fluctuations that are about to happen. There are many fundamental theories you need to know about, and applying these concepts in real-time trading requires an understanding of the technicalities, which is practical knowledge. However, a beginner needs to learn and obtain all these skills from scratch and completing this skill set takes some practice and hands-on trading experience. Keeping track of your progress and evaluating your performance is essential to understanding what you need to work on, allowing you to improve with time.
But if you are new to the forex space, you might be confused about the performance review process, and I will be helping you in this regard by giving you a simple step-by-step guide to follow for assessing your performance as a forex trader.
Setting Clear Trading Goals
Having a set of personal trading goals gives you a sense of direction in the forex market. When you start trading, these goals should act as a driving force. These are not just monetary goals about profit targets but also long-term goals like what kind of trader you wish to become. The goals you set for trading should be clear and well-defined. Setting vague goals will not transform into results, so we recommend breaking your long-term goals into simple and achievable short-term goals so that you can take one step at a time. This gradually takes you to your ultimate goal over time. Your trading performance will be reviewed on the basis of these small goals to make things easier.
The goals you set also need to be realistic and practically possible, because we see many beginners who enter the forex world with sky-high expectations without any action plan to follow. Being ambitious is a good thing, but your ambition needs to have the backing of logic and practicality. You cannot have a goal to get rich overnight while starting your trading journey. Those who have a basic understanding of the functioning of the forex market will usually set their goals around risk management and minimizing the probability of losses.
The first step towards profitability is cutting down your potential losses. Professional trading is all about anticipating losses and the expectation for profit. Professional traders also use different trading tools to ensure their trades become profitable. Trading tools provide traders with a variety of data that help them place trades more accurately, and as a result, chances of error become significantly low.
Record All Your Trades in a Journal
Your trading journal is a powerful tool for reviewing and assessing your trading performance. This tool needs to be used on a regular basis by recording all your trades in a detailed manner. You need to be systematic with journaling as sometimes traders keep the record for the first few days, and later, they tend to skip this part due to their busy schedules. But you need to be disciplined and keep recording your trading routine every single day without fail. Using a spreadsheet for recording would be ideal to keep your journal ready for any calculations later on.
Those who find it difficult to do it manually can make use of automated tools that are easily available on trading platforms. You just need to ensure that all trades you take are being recorded in the journal, whether online or offline. You will be using this journal a lot during the performance review, and looking back on your trades really allows you to spot what mistakes you committed during the trading process. You may not realize you did something wrong while doing it, but you will start noticing all your shortcomings when you conduct a performance review while being free from the stress of trading.
Reviewing Your Trading Strategy
One major mistake many traders make while analyzing their trading performance is that they forget to review the trading system or strategy while going through their trading history. When we go through our trading history, we will surely understand that some issues need to be fixed, but the root cause of all these problems lies in our own trading strategy. That is why it is important to check the viability of our trading system and optimize the same to improve your performance. No forex strategy can work forever when the market situations keep on changing. Hence, you should be open to making modifications and updating your strategies on a regular basis when it is needed.
You need to check if the strategy is really allowing you to reach your full potential as a trader, and if not, you can start making changes to the rules and parameters that you stick to while trading. But all the changes you make to your strategy should be based on a detailed analysis as well as logical calculations. Your entry and exit points for a trade play a key role in the end results you get. I strongly recommend using simple tools like a margin calculator in every trading session. Reason being, if you know the exact margin for trading, then you have a better chance of making a profitable trade or at least managing your losses.
Reviewing Risk Management
Having a good trading strategy is not a guarantee for success unless you can manage the risk, which is unavoidable in forex trading. The losses you encounter while trading must be minimised with a solid risk management plan. In fact, we can refer to risk management as a safety net that protects your capital from being wiped out due to excess losses. It is impossible to eliminate losses as a whole, but we can take some measures to keep the account drawdown limit. Setting a risk/reward ratio is essential to ensure that you only enter trades with a good potential for profits and are actually worth the risk.
Placing a stop loss or trailing stop loss in every trade is also an important step in risk management. There are some traders who follow no-stop loss strategies, but I will always recommend staying in the safe zone with an optimal stop loss that is not too tight but also not too wide. Some traders place stop loss close to their entry prices, which is not recommended as it leads to sudden exit even before the trade starts running. So, you need to calculate your risk tolerance and place the stop loss based on how much you can afford to lose with the trade. In case you are trading in another currency than your base currency, then you can use a currency calculator to determine the exact amount of losses you can take in a particular trade.
Keep Your Emotions in Check
Forex traders are bound to feel intense emotions like fear, excitement, stress, and more during trading. The fast-paced forex market often pushes us to the edge of our seats while trading. However, letting these emotions take control of our decision-making process will have a negative impact on our performance. Hence, we need to keep these emotions in check to ensure our performance is not deteriorating due to emotional trading. Knowledge about trading psychology really helps in gaining emotional control, and this actually allows traders to perform better.
Ask for Advice and Revise Your Trading Plan
The last step in this trading performance review is asking for advice and suggestions from experienced traders and revising your trading plan to fix the issues that you noticed during the assessment. Identifying and solving the issues is the main purpose behind conducting a performance review. After the review, you will be able to see where you went wrong and then look for ways to do it right next time. Sometimes, the issue lies with your trading goals not being set properly and setting concrete goals with clear short-term targets will improve your performance as a whole.
You will also realize the mistakes that led to the results while going through your trading journal. In some cases, you will have to make corrections in your trading strategy to optimize the performance of your trading system. Your risk management can also have shortcomings, leading to disappointing trading results. Not having enough emotional control and engaging in impulsive trading is another issue that might be affecting your trading performance. If you are unsure how to resolve these issues, you can seek guidance from other traders by being a part of forex forums and other community platforms for traders.
You must conduct periodic reviews of your trading performance to attain long-lasting success in the forex market. Don’t think of competing with other traders, but compete with yourself and work hard to get better at what you do. Being consistent is what makes you grow as a trader.
Disclaimer:This article is not intended to be a recommendation. The author is not responsible for any resulting actions of the company during your trading/investing experience.