Reviewing my five worst trades each month, and what they had in common

[Fairman]

Reviewing my five worst trades each month, and what they had in common

at the end of every month, I pull out my five worst trades by result, and I look at them side by side. It's uncomfortable but useful. The point isn't to feel bad, it's to see if they share something.

When I started, I expected them to be a random assortment of bad luck. In practice, they had a lot in common. Most were taken outside my main sessions, most had a wider spread than normal at entry, and several were taken within an hour of a previous loss. They weren't unlucky, they were predictable.

Having that list has changed how I think about risk. I no longer worry as much about the setups themselves. I worry about the conditions around them: the time of day, the spread and my state after a loss. Those are things I can control.

I write down one rule from each month's review, and I add it to my checklist. It's a short list now, and every item on it came from a real trade. That makes it easier to follow than a list of generic rules.

[Fairman]

This is a great habit. I tried it and found the same kind of thing. My worst trades were mostly outside my main session and after a loss, not because of the setups themselves. The point about the conditions around the trade being more important than the trade is the key. Now I have rules about time, spread and state, and the setups are the same as before. It is one of the most useful half hours I spend each month, even if it is not a fun one.

[Fairman]

Worth doing the same with the five best trades too, side by side with the worst. The contrast shows what the good conditions look like, not just the bad ones. For me the best trades were almost all in the first two hours of London with normal spread and after a break. That gave me a positive picture to aim for, and aiming at something is easier for me than just avoiding things. Doing both side by side takes about an hour once a month and gives me more to work with than weeks of looking at totals.

[Shadow Trader]

Rank the five by R rather than money, otherwise a month where size went up will fill the list with ordinary losses that were simply bigger tickets. Ranking by R puts a 2R loss at half size above a 1R loss at double size, which is the right order.

The common features also need a base rate before they become rules. If three of the five worst trades came after a previous loss, that only means something if far fewer than 60 percent of all the month's trades followed a loss. When most trades sit in that state anyway, the pattern is just the normal mix.

A useful extra pick is the worst rule break that made money. Winners taken outside the plan teach the same lesson as the worst losers, but they never show up in a list sorted by result.

The checklist will also keep growing at one rule a month. Retiring an item once it has gone three months without being needed keeps the list short enough to read before each session.

Do you check whether a new rule actually reduced that kind of trade the following month? Or does it stay on the list for good once it is written?

[Shadow Trader]

Five is a fixed number, which means it samples very differently month to month. In a 25 trade month the worst five are a fifth of everything, and in a 150 trade month they are about 3 percent, the true tail.

A percentage keeps the review comparable. Taking the worst 10 percent gives 3 trades in a 25 trade month, rounding up from 2.5, and 15 in a 150 trade month, which is a big enough group for a pattern to mean something.

It also helps to pull the trade before each one. The point in the opening post about trades within an hour of a loss shows up much more clearly when the prior trade sits next to the bad one, along with the minutes between them.

Worth splitting execution from decisions as well. A loss that was 1R by plan but 1.6R after slippage belongs in a different pile from a trade that should never have been taken, because one fix is the order type and the other is the plan.

Does the worst list ever contain a trade that was fine by every rule? Those are the ones that show the plan itself has a hole.