Tracking rule breaks separately from losses

[Fairman]

Tracking rule breaks separately from losses

It's natural to look at losing trades to find mistakes. But some losses are just normal outcomes of good trades, and some winners come from breaking rules. If you lump everything together, you can end up learning the wrong lessons.

What I do is add a column for whether the trade followed my rules. Yes or no, and if no, which rule. Then I can look at four groups: followed rules and won, followed rules and lost, broke rules and won, broke rules and lost.

The followed rules groups tell me about the strategy itself. If those losses are within the expected range, the strategy is doing what it should.

The broke rules groups tell me about my discipline. The important one here is broke rules and won. Those trades reinforce bad habits because they feel like proof that bending the rules works. Over time, I'd expect the broke rules group as a whole to do worse than the followed rules group. If it doesn't, maybe some rules need revisiting.

Counting rule breaks over time also gives a simple discipline measure. If the number goes down from month to month, that's progress even if the overall results are flat.

It does require honesty in filling it in. The column only works if you mark a break even when the trade won.

[Fairman]

One refinement is to categorise the rule breaks. Entry breaks, like entering before confirmation, are different from management breaks, like moving a stop, and from risk breaks, like using more size. Each has a different cause and a different fix. If most of your breaks are in one category, that's where to focus. Grouping them is quick once the column exists. Most people would guess their breaks are at entry, but management is a common culprit too, since that's where emotion builds while the trade is open. Splitting them out tells you which one is actually yours.

[Fairman]

It can also be useful to note what was happening just before each rule break, like a loss, a missed move, or a long quiet stretch. Rule breaks often have triggers, and once you can see them, you can plan for them. If most breaks come after a loss, a rule about pausing after a loss directly addresses the problem. That's more practical than a general resolution to be more disciplined, which tends not to last long. Specific rules aimed at the trigger work better than willpower. A rule like 'after two losses, ten minute break' is concrete enough to follow.