Trade like a pro:
How to evaluate your crypto trading results for this year
The end of the calendar year in many markets is characterized by thin volumes and low staffing on traditional trading desks.
Junior traders reign while senior participants have other things to do and places to be. Most tax-loss selling is done by December, although some dog positions will be blown out right to the end of the year to lock in losses against gains.
There’s plenty of overeating, drinking, and relaxation. It’s also an excellent time for reflection and introspection. This is the perfect time to look at your crypto trading process and results over the last twelve months.
An annual trading evaluation helps you to see where you are doing well and where you can use improvement. It’s also a great time to plan adjustments to enhance your performance in the year ahead.
If you’ve kept detailed trading records, you will be ready for your annual analysis. You can also download your transaction history when signed into your Bitvo account or request a succinct summary from Bitvo’s support team.
There are several areas you may want to focus on. These include:
– Trading frequency for winners and losers
– The market conditions during trading frequency
– The duration of winning and losing trades
– The details of your biggest wins and losses
As you explore your results, you will start to see patterns of behaviour. You may discover that you trade too much when the market is less suited for trading opportunities. Or you might find that you trade too often in trending markets.
You may become aware that you have certain trading tendencies that are hurting your profitability. These include trading to make it back, trading not to lose, or praying to help losses. You may be letting your losers punish you because you need to be right.
By taking the time to look at the details of your trading, you may uncover the sources of your profitability and the places where you can reduce unnecessary losses.
When you are profitable, it’s a lot easier to ignore the process of looking at what you’re doing to make money. But ignoring this exercise might mean leaving money on the table.
Let’s have a look.
Scalping when swinging
Take a look at your trading frequency and compare your trading frequency with market conditions and your perceived trading style. You may think you’re a swing trader but, you may be acting like a day trading scalper instead.
Ask yourself if you are overtrading during periods when the crypto asset you trade is trending. You may be doing a lot of shorter-term scalping and consuming lots of energy. This often results in missing big parts of profitable moves.
Now, if this is the case, ask yourself if you traded less frequently during these periods. Would you have made similar gains, more or less?
If the answer is the same or more, why are you overtrading?
Perhaps you haven’t developed a rough trading plan that helps you think through where things are going. Maybe your initial positions are too large, or you have some other distraction that keeps you from sticking with your plan.
Was it flat?
Now in another scenario, your trading might reflect lots of smaller losses associated with frequent transactions.
Looking at your trades, you may discover that you aren’t taking into account the current volatility. Your stops may be too tight or your trading too big for the conditions. Maybe your strategy is in conflict with your intestinal fortitude.
Periods of overtrading often occur during flat markets where the trader is trying to make things happen. Or in another scenario, when a trader is losing, overtrading becomes a symptom of trying to “make it back.” This version of overtrading, the needy version, can be financially lethal.
Trading to “make it back” is like smoking next to a gas pump.
The antidote here is to develop a way to recognize changing market conditions and scale back when they become flat and choppy. That means less size and or fewer transactions and maybe a wider volatility tolerance.
How about the duration of your gains and losses. What does the holding period of your trades tell you?
For example, you might discover that you hold losses past your stop points frequently. This may be because your stops are way too tight, given the volatility. It may be because of a mental issue like needing to be right.
Fighting the market because you need to be right is a tough way to make a living.
Now, if you set reasonable stops and honor them, how much mental energy and capital could you save?
Maybe you have been trading with a negative bias, which is trading “not to lose.” This is characterized by taking your gains too quickly and continuously scrabbling to get back in.
In this case, your trading plan might need an update, assuming you are using one.
Respecting stops and cutting losses quickly, saves financial and emotional capital. And when your trade is working, adjusting stops higher or using a scale-out approach can help you take more of the upside with less work.
A few adjustments can help you capture more profit with less energy and fewer transactions.
Pots of gold and dumpster fires
Now let’s look at your biggest gains and losses.
Do you notice anything in terms of your process that led to your most significant gains?
What did you do well in terms of execution, position size, stops and volatility parameters?
Were the same characteristics present in all of these gains? Or were some of them a result of unexpected market moves that would be impossible to replicate through your process?
This is critical information. Results from the application of skill should never be confused with results that happened as a result of unanticipated circumstances. Old traders say, “it’s better to be lucky than good,” but it’s dangerous for your account if you start to believe that it was your process that was good when you were actually lucky.
Keep a note on what you did well and where circumstances intervened. If you don’t have any big gains, that deserves some thought as well.
What about your losers? What happened in each case and is there a pattern? Did you defer to prayer as a trading strategy in any of these instances? The trading gods don’t always answer, as I’m sure you discovered.
As in the case of your gains, carefully consider instances where unanticipated market moves caught you offside. While you may have done everything right in spite of the situation, the size of the loss may point to some risk management adjustments that could be made for future trades.
A little tweakin’
Your ability to expand your trading, increase trade size and continue to grow depends on taking the time for self-evaluation. If you have a trading journal, you are doing this daily to some extent. However, it’s always good to step back and look at the trends in your performance and behaviour over longer periods.
For the new year, you may find a series of adjustments are required. Remember, only focus on one change or iteration at a time.
Radically adjusting an existing crypto trading process, especially one that’s been mostly successful, can be disruptive and actually make your trading worse. Start with one change and then move onto the next one.
When it comes to your crypto trading results, there are no feelings, bias or favoritism. There are only data and how these data points were achieved. So be ruthless but kind to yourself. Only you will know how you got there, it’s your secret sauce.
The question you have to ask yourself is: was last year’s sauce any good, or is it killing the cook?
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