THE EQUITY CURVE -- P O W E R F U L F E E D B A C K
Here's a technique that's simple to implement, but which can be very powerful: simply log your net account equity into a spreadsheet every evening after the close, and plot it as a simple barchart. If you make deposits or withdrawals, factor them out; just track your trading gains or losses from the starting point. There are many possible refinements to this, but the key idea is to plot your account value, marked-to-market if you carry things overnight, each evening and to plot / monitor it carefully, on a regular basis.
If you use an Excel workbook file to do this, take note that you can easily store an entire year's trading days into a workbook at one trading day per worksheet (tab), with rollup (summary) sheets and charts on their own pages (worksheets). An Excel workbook can easily hold over 500 worksheets, each of which might represent a separate day of trading (like the Excel files that RT III generates for you on your disk). It is easy to link data from an individual worksheet, to a rollup sheeet.
But if you're not using Excel, or want to keep this easy, it can be as simple as entering a single number into a worksheet every evening, and creating a bar chart of the resulting data series.
What you will be looking at on the bar chart is: your trading performance, good or bad, in black and white. The result of looking at this every day, can be much more powerful than you might expect. First, on a conscious level, it forces you to think about the true ramifications of your trades and trading techniques. More powerfully, it will motivate you sub-consciously towards success, and provide an early warning when you start to slip, as all traders do periodically.
After you become familiar with this, in order to gain further advantage from this technique, I have found it helpful to set weekly and monthly goals for the equity curve (making allowances for the current market environment), and working towards them. You will feel the "pressure", but you will find yourself building equity quicker, than if you try to operate open-loop. It will also help you guard against getting "lazy", after periods of high-intensity, successful trading. And if you hit a rough spot, you will catch it more quickly. You might find yourself making profits more quickly and consistently, and taking more vacation every year. This is the ONLY reason I am so fond of this technique!
This is the single, most powerful technique I can offer a fellow trader. Try it, and you'll see what I mean (although I'm not sure it would work for every trader). I would warn that it's harder to keep up with this on a regular basis, than it sounds like it might be... but well worth the effort, in my experience.
Good trading - Steve |
