We've all heard about Einstein and his mind shattering theories that changed forever the way we look at the universe. One lesser-known caveat he spoke about applies specifically well in the trading area. Do not worry, you will not need to learn calculus here, but the theory is relevant to trading nonetheless. Einstein said that the definition of insanity is to try something over and over again and expect a different result. Ok, obvious enough. But what do you do in your trading? Do you repeat something over and over, expecting something different? Do you even know if you're repeating the same technique each time?
There's the rub. Few traders take the time to analyze what they do and what the results are of each action. This is a key element in your trading that you MUST do to survive long term. So, here's what you should do to get in touch with your insanity level.
1) You've heard that you should keep a record of each trade, but you must also keep a record of the reasons why you took the trade, what your thought process was behind it.
2) Be honest and do not lie about what you did. (See my previous article "The One Thing You Must Know Before Making a Trade")
3) List every trade, not just the winning one's. List your emotional state each time. Try to determine if the trade was based on logic, or a result of an impulsive emotion (such as fear or greed).
4) Take the time to analyze your log. Compare your trades to the strategy your using. Are you following your planned trading method? Do you impulsively deviate from the plan? If you do follow the Trading plan, and it's not showing a profit, them it's time to change the system.
Sometimes we get involved in something and do not take the time to step back and see if it's the right path to take. Keeping a log and looking hard at your results will improve your trading results over the long run.
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