• Jan

The daily report card




The purpose of a daily report card is to collect behavioral-performance data around specific actions that the trader is participating with daily. Those might or might not be directly related to trading. For experienced traders who are well suited in their routine this post might not provide much value, but for those still experiencing large issues on a specific area of trading or more beginner based traders this might provide some clues on how to structure the daily journaling and data collection. The main function of daily report card is to uncover the problem area and find a clear direction of focus upon where trader needs to put problem-solving towards.



Usually, when large sample base of traders is taken under the microscope there are often very specific issues present, the fact is that majority of traders do not struggle with all the areas within the trading process, but instead there are clusters of specific weaknesses that cause issues to such individuals performance, and those might vary from person to person a lot.

A common pattern is 80-20 or 90-10, where a trader will do relatively well in 80 or even 90% of the aspects in trading (managing risk, entries, and exits, psychology, etc...) but there will be a small portion of trading-related processes that will cause an issue. And in some cases, it will be quickly visible on what and where that issue is, but in many cases, it will not be, as many of those factors have under-laying secondary factors, and to point them out...that's where the daily report card comes into play.


As a trader, you can always ask external help of other more experienced individuals to help you find the issue area, but a properly structured report card will always do a better job since no other trader can understand your thought process in depth (as there is a lot to go trough), while every individual can construct for themselves ideally suiting daily report card.


There are two approaches on how a trader might structure a daily report card routine:

1.Broad-based data and performance gathering

2.Personalized/focused data and performance gathering


For a trader who is unsure (less experienced) on where the exact issues might be it would be best to pick a route 1, where trader collects in daily report card many different aspects of the trading performance on daily basis. For example, if the trader has no idea whether it's his poor risk management, sub-optimal entries, FOMO, poorly shaped ideas or anything else what might be contributing to the downside the most, in such case its best to create a wide blanket of data collection so that trader lets the data over time to guide on which area of his/her trading might be most problematic, contributing to the negative bottom line the most.

The point of wide search is that trader is not trying to get too smart ahead and assume too much, let the data guide you slowly, and only after that sharpen/refine daily report card to focus on that area more once data confirm where the issue might be.


Example for broad-based data collection:




While for a trader who has a decent experience and has a vague idea on approximately where the issues might be (general area) in such case it is better to formulate daily report card that focuses on gathering few data points only around that particular area, so that trader can pin-point exactly where the issue is overtime.


Example of specific targeted area daily data collection, where the trader has approximate understanding of the area that needs to be placed under focus:



A good correlated area to this is in marketing, broad-based ad campaign versus specifically targeted campaign. For example, if one is selling a product without really having much information on who are the types of individuals interested in product it is better to launch a broad-based campaign and let the data over time point slowly towards the cluster of interest area and "specifications" of such individuals.


While for more experienced marketeer or seller of such product it will be more clear what the broad customer for such product might be, in which case it would be better to launch a very specific targeted campaign that focuses on improving the very specific area in add campaign to sharpen it towards the right customer.






Keep measuring of everything within fixed absolute units.



If we take as an example "accuracy of entries and exits" as one of measuring methods in a daily report card to note how well did trader do or how much did he/she under-perform then trader must have some sort of unit measurement going on which allows three different days to be compared in relatively similar terms, even if the trader has traded completely different markets or assets.


R units are a good way to go about it where the trader takes into account the volatility and the trading setup itself to marry together the right measurement approach established in units of how much accurate or late/early the entries were for example on setup A (day 1) and set up X (day 6). Or the use of ATR (average true range) might as well be helpful.

There needs to be some sort of unit process established so that trader can objectively measure two trades back to back.


Example of "eyeing-it" approach on left and unit based measuring system on right to define daily process better:





Trader needs to have a completely different measuring approach for every setup which should as well be reflected trough R units. Yes, it does sound like a lot of complicated work initially, but once one gets used to it it is a smooth sail.


If setups are not somehow placed in terms of units then it all becomes just a very rough "eyeball-it" game. And at that point, the quality of data collected drops.



This means that even for non-chart based areas of data that trader is collecting need some sort of measuring in place so that they can be objectively compared day today. For example, if one is tracking a psychological mood before the start of trading activity as a potential contributing factor to performance, then score/measuring needs to be somehow established.

Using words good or bad is not good enough. Instead, there should be either scale used from 1-10, or perhaps some specific words (neutrally unbiased, slightly annoyed, cheerful, bold, and decisive....). Those will provide more value as they can be much better compared to the rest of the days while getting specific, rather than just stating "good" or "bad".


And the same approach should be applied to everything else.


If daily report card is not structured well it will be a waste of time. The report card is not meant so that trader can look back, see 10 green / good days noted on the report card and tap him/herself on the shoulder "bud you did good". That is not what daily report card is about. It is about finding flaws and finding strength and expand/contract them.


Every area of daily report cards needs to have a clearly defined structure, so that trader does not jump and mold the data from day 1 into something completely different on next day.



For example:

Tight cutting of losses (what defines cutting loss quickly for setup A, where exactly is that location based on setup? Where exactly is that about volatility size and R units for this current setup?)

Commission cost impact today (did I use too many market orders, if so what was the impact on P/L relative to if limit orders at cheaper costs would have been used? How much did I pay for borrows/overnight swaps/interest rates relative to what would be cost at other broker Y?)

Etc...


Make sure that every collected area on a daily report card has at least 1 or 2 very specific sub-categories so that at the end data can be used. If data is too general it won't be useful. For example just collecting data on "cutting losses quickly" without clearly specifying where the quick cut of loss for specific play is, won't do any good.



For anyone willing to dig more into details about these issues feel free to research data mining (non trading related) and how broad collections of data are gathered in today's information age, then refined more and more into nooks and crannies to get to the core of the issue. This is the core principle that should be used on the daily report card.




Structuring daily report card well (it is not just about journaling)




It should be stated straight away that there is no such thing as a cookie-cutter daily report card for everyone as it will be different from person to person. This mainly comes used to the fact that different people have different strengths or weaknesses and different daily routines, which makes the structure of daily report cards somewhat different for every individual. However, there are some rough general guidelines or more broad topics that trader should be addressing in report card some of which have been touched upon in the article, for example:


1.The risk to reward ratio

2.Accuracy of entry and the drawdown

3.Emotional state when starting to trade

4.Emotional state in the middle of the trading session

5.Following rules for each play very closely or not

......


The report card should be structured carefully, mind that report card is not about noting down a daily journal and perhaps writing a book later on about your great days and your mistakes. The value of daily report cards is in the strategic assessment of behavioral mistakes or behavior right-doings to enforce good behavior and to put in plan/play to change the bad behavior. And the only way to define what is good or bad is by using performance as a guide for each specific behavioral data that trader is collecting.



What the game is about (behavior change and behavior optimization)




The purpose of a daily report card is a few folds:

1.Change of behavior/approaches that cause the most harm to trading performance

2. Reinforce the behavior that supports good performance (let the data point you out exactly what that is, rather than just assuming it)

3.Finding out which behaviors or actions are not that meaningful to your performance.



Under changing of behavior it is meant that trader should let daily report cards speak for itself which traders' actions of behaviors are the most consistently under-performing. Those are the ones that trader should try to find solutions to change the behavior or the way how actions are taken.

(For example, if a trader is frequently not respecting the set risk-on trade and those trades tend to be large losing positions then trader needs to find a way to approach and change such behavior. It might not be easy at all, but once a problem is identified it needs to be targeted.)


Under reinforcing of behavior, it is meant if the trader is consistently performing very well on a specific category and there is prove-able data that suggest that those actions provide a lot towards positive trading performance then the trader should reinforce or perhaps find a way to make the impact of this behavior even stronger on performance by somehow expanding it.

(For example, if a trader finds out that days where extensive exercise was performed by the trader before trading started and those days show a clear distinction in trading performance it might be worth reinforcing such activity).


Under meaningless or neutral behavior it is meant that often traders tend to rely on assumptions a lot, they hear what others are telling them that it matters (don't do this, don't do that) but very often many of such assumptions tend not to be much of issue for certain traders as the properly structured report card should point this out over time. (For example, a trader might assume that certain behavior is causing him 20% tilt to the negative side, but in reality, the detailed report card might point out that its impact is much closer to neutral, meaning that trader should not be putting priority attention to such feature, and instead put the focus elsewhere). Avoid fixing what might or might not be an issue, instead focus on what is an issue as the report card should point it out.)



Figuring out cyclical mistakes



Keep one thing in mind, the intention or problems pointed out from report cards are not about singular events, or singular mistakes. The focus of the report card is strictly on adjusting the cyclical behavior, the same type of behavior that keeps repeating over a large sample base again and again.

As a trader you will always be making isolated mistakes which are unique and might deliver huge winning days or large blunders, those will happen, but the key use of report card is not about fixing those isolated cases. Those cases are simply to asymmetric and too human to get rid of, instead, the main behavior that should be in focus is the semi-automatic behavior or highly repetitive behavior as those behavioral activities will impact you every day and those can be approached with solutions, as they are usually proper robust solutions that can be implemented to address them.


This is very often a mistake that traders make, they have decent sized losing day and then they try to isolate one thing that went wrong which might have caused the issues on that day, and then trader will note down to "never repeat that again". Those kind of notes and lessons rarely have any use since they are isolated cases and eventually trader will repeat them. Again the report card is not to solve one traders mistake on a random day of a random month, instead it is to shine a light on cyclical mistakes that keep frequently repeating, even if they only deliver slight tilt of performance to upside or downside.



Swiping the losing days under the rug (intentionally or not)



One thing common to many traders is that they like to swipe the loosing days under the rug and forget about them as quickly as possible. Now while starting every day fresh without a memory of previous day is very important for optimal / neutral bias, there is however a value to note down strong loosing days else traders might not have chance to correct the mistakes. What routine process of making daily report cards every day ensures is that trader does not skip on noting down the details about that specific loosing day, the routine ensures that data is collected, and this is the key.


There is simple fact just like with any other habitual behavior, if trader only collects data from certain day here and there he/she is more likely to not record the loosing day, while if that individual has solid established habitual routine of doing it every single day, chances are that no days will be skipped, no matter how green or red.



Problem-solving



Once a mistake or under-performance area is spotted from collected daily data reports, the trader needs to build a solution to fix that behavior or reinforce it (as mentioned above) if it is desired behavior. This is where problem-solving comes into play.


There are certain aspects of trading which have an easy solution and there are others which have much more difficult solutions. Fixing the issue of using the wrong position size is for example much easier than fixing anger issues while taking a losing trade. Each of those might have a much more complex problem-solving task for the trader to figure it out. Some problems are single-layered and some (such as anger issues) are multi-layered. The more layers the more difficult it might be to change such behavior.


Example of daily report card over 5 days showing under-performance on patience on profit taking:



Solving problem is where the real work starts. As said before, some issues are easy to fix and some are not. Some need further branching to get to the core of the issue and some do not.



Finding optimal solutions to the problem areas




When it comes to applying potential solutions or improvements there are two approaches to how a trader might go about doing it. First is the "on the fly" method where the trader will look at daily report card data where it underperformed, formulate a potential solution and then apply that directly on the trading straight away.


The other method is a backtest first-apply later method where a trader will think of a potential solution and then historical trades (over past 1 month) will be re-counted with certain "fix" applied to it. Basically with this method trader wants to confirm first if that "fix" makes an actual contribution to the positive side in the first place before applying it to the live market.


Obviously not everything within daily report card can be re-counted with second method. For example if one was to check what difference would it had made to wake up 3 hours earlier on actual trading performance impact it would be impossible to backtest and recount that with adjusted wake up time for previous 30 days, unless one had a time machine at its use. Certain areas are where only first method will be useful, but if possible use second method as long as it makes sense to do it. Why? Because you are cutting away un-necessarily spending of time, you are speeding up the learning / improvement curve.


Personally, my preference is to always go with the backtesting method first if possible. As a trader if one is looking for improvements as fast as possible you want to formulate a backtest of the problem-solving solution first as that can be done within a single day (to discredit or confirm the idea), meanwhile to forward test it in the live market might take a whole month. Which is why backtesting potential solutions is always a better idea.

In many cases what trader assumes to be a "fix" is not providing much value at all (neutral impact to performance improvement) or in some cases, it has even more negative impact relative to if no changes were made at all. Which is why backtesting is good idea and so is constant search for refining of solutions.




An example would be this:

-Trader collects daily report cards where data shows that there is underperformance in entering positions too late into the pullback which causes to miss many opportunities.

-Late entry (too much patience?)-missed opportunity-no further opportunity to reenter.


And such trader might conclude that to fix this issue entry should be applied sooner, even if that means getting some drawdown on position.

At this point, a trader can implement such action straight away on a live market, or a better idea is to use historical trades, implement it on them, and re-count the performance of such trades, does performance increase, stay neutral-same, or decreases? Because if the backtest(re-count) shows improvement, fine implement it on the live market, but if it does not, do not even bother, no matter how much "sense" it takes to do so.

Always re-count any potential problem-solving approach on historical trades first, before you apply it on the live market, if possible. And it should be pointed to create successful accurate re-count you need to implement the method suggested above on article to standardize the counting units correctly so that different trades can be compared back to back in terms of R units, else it might be one big mess.


Example placed on the conceptual case (where traders assumption of fix / solution turned out to not be such a good implementation as historical backtest / recount showed):



The example above shows that finding solutions to the under-performance in trading is often not that easy and clear on plain sight. It might require re-constructing the solution, playing with backtesting of data again, and trying until there is one solution that does not skew the majority of performance variables to the downside but instead has overall decent improvement.


Collateral damage likely



Any solution or fixing that you do to your trading approach is likely to create suffering or degrade certain aspects of your trading stats.

For example, improving patience on entries might as well likely decrease the number of opportunities, or increasing the RR ratio on trades might as well very likely increase the number of stop-outs and losing trades etc...You gain something, you loose something, the only thing that matters, do you gain more than you loose by implementing solution?


And keep one thing in mind, really important. Gain or loss as mentioned above is by no means applied strictly to profits or losses. If all trader cares is bottom line P/L this will not be a good way of approach. A trader should care about creating trading as enjoyable, smooth sailing, stress-less, and at the same time not sacrifice too much of the P/L curve for enabling that. It is about balancing all factors together in ecosystem, not just a full focus on P/L (in terms of what is right or wrong to do).


There is always something you sacrifice to balance things overall into a slightly more positive balance. The ideal is that trader knows which things are worth sacrificing and which are not so that only solutions are implemented where as little as possible sacrifices need to be met and as much as possible advantages are gained, this is the trick.


But in general there is collateral damage to every action:


-Decreasing position size to have better emotional control over trades

CD: Less potential fiat gains.

-Trading in the group as opposed to trading alone to learn from the mistakes of others

CD: Less focus, less time spent on fixing internal problems

-Using wider stops to decrease the amount of losing trades an un-necessary stop-outs

CD: Lower RR on trades and potentially (or not) fewer gains.

-Using more paid news sources to catch a few news plays per month

CD: extra monthly payments for subscriptions, more cost burden regardless of performance

-Trading 5 tickers at once instead of just one

CD: less focused read on the tape / Level 2, more likely to miss important action

Etc.....


Again make sure you weight every decision / solution if it is worth it or not. Keep what provides value the most, expand and build on it, what does not provide value find a new better optimal ways. Focus on value.





Structure your trading approach well (as well as outside hours)




The trading process should be mechanized as much as possible, and not just that it should also be structured in a way so that trader has by default chips stacked as much in his favor as possible. By that, it is meant that the activities that are not necessarily strictly related to trading itself have to match well to prop the performance of trader to the positive side. It is often a good idea to expand the daily report card into tracking certain areas or daily routines that are not directly correlated to trading and yet they do impact the performance.


For example, such a case might be:

1.The time at which you wake up

(Some individuals perform better by waking early and kicking the day off, while others perform better with lengthier sleep or starting trading activity as late as possible)

2. How many hours of solid sleep do you get

(On some individuals the quality and hours of sleep have major performance impact especially if sleep-deprived, while to others they perform well regardless of that)

3. Activity before trading started (yes/no, if so how much)

(Some perform better with taking workout or some sort of activity before starting to trade, while others perform just as well jumping straight out of the bed)

4.Starting to trade at pre-market or rather after open, or if not which hour?

(Some traders perform better in later hours when tickers find their trend directions, while others perform better anticipating or trading based on data in earlier hours, there are no right or wrongs, find what performs better for you)

5. Focus on the ticker that everyone is watching, or rather on the ticker that has the strongest edge ratio?

(Some traders have a better eye in high liquidity conditions and perform better while others perform better tracking the assets which are not on the radar of many traders)

..........



There are about at least 10 major important questions that each trader should address, and those might be very different from person to person. For example for someone waking up too early and getting behind the trading screen might have a much more negative impact on performance (morning brain fog) than to someone who is a morning bird. Which means that a trader should know him/herself quite well to know what the overall weaknesses and strengths are so that daily report card is structured in a way that it addresses those as it is likely that those will have an impact on performance. And trader needs to find exactly how much impact they have so that certain habits within the daily approach might need to be adjusted. It is not worth fighting head-on into the stone wall if the report card clearly shows that there is a habitual issue impacting performance. Find a solution to change your daily habits to address them if they impact performance on negative side and reinforce those habits that show clearly that trading performance is impacted positively.


The examples above are more general daily activities and perhaps many traders will find them important while others might not. It is important to note down certain key daily habits which are trading hours and non-trading hours related and then think trough which of those are important to track on the daily report card and which not.


Mind that you should not be tracking every little detail of your daily trading or non-trading activities because if daily report card writing becomes too tedious the trader will lose interest over time and will not have followthrough on doing it on daily basis. Keep report card as robust and as high priority oriented as possible to ensure that you will follow-trough every (or at least majority) of days on it. Minimalistic, but not too minimalitic so that it is specific and relevant enough.


However, the trader should as well be specific. Noting down on report card: This was a good trade, or it was a bad trade is meaningless. Such a statement is too vague and it provides no strategic use to the trader.

Instead, the questions or data collected on daily report card needs to be specific, for example:

Trade did not exceed 1R draw-down and had 3R gain, good.

Trade did exceed far over 1R draw-down and resulted in 1R gain, bad.


Each variable in the report card needs some sort of correlation to some other secondary variable, this way the data is cohesive and much more meaningful. The above example ties together DD (draw-down)+RR (risk to reward)+accuracy of entry and exit. 4 variables intra-linked, rather than just stating of the fly a good or a bad trade without being specific about it.


Trading is a process of connecting many variables together, do not over-estimate your ability to "toss all of them in your head well". Your memory might say A but actual collected data may say B. Try to rely much more on data rather than your own ability to keep it all within the frame of memory and logical assumption.

The whole point of doing the report card is to dig into the details. And what those details are will be different for every trader.



Example of personal report card



This is my report card structure used for equities specifically in mid-2019. An example of the report card below is structured in a way so that the more score that is gathered on the whole card at the end of the day the better the trading was, even if P/L was not necessarily strongly green. This is about focusing on what is right to do over 100 samples, not 1 sample and the focus was on process not the P/L.


Each of the sections was then also compared to side by side at the end of the month to isolate the most significantly highest or lowest scoring areas as a potential focus for next month's report card structure. For example if "How many R was left on the table" displayed a very low score then this would be placed under attention to try to fix the issue as well as to focus the data collection for next week around this area.



As noted above, report card should be changing over time. Once previous mistakes are addressed and fixed trader should re-structure report card so that it focused on the particular area where trader would still like to see improvement.


Trader can use simple pen and sticky notes to make those report cards on daily basis, or some prefer Excel software, others rather use Notepad. Use whatever works for you, make the process as enjoyable as possible for yourself.


And remember, if you cheat on report card and you are not objectively noting down your score / mistakes (skewing them to make score look good) then the whole process will be worthless. If you cannot trust yourself or have issues with self-objectivity find a trading partner who might be willing to do it for you.





Conclusion



While it might take some time out of the trader's schedule to create detailed report cards each day it might as well serve valuable information. If a trader is not collecting daily report performance and is instead doing it all at the end of the month in reverse it is much more likely that the data/performance noted will not be very objective as emotions will be discarded from performance (which should not be) and perhaps trader might be more inclined to not address certain issues because in hindsight after many days he/she might completely forget about certain micro-issues here and there.


Creating a daily report card where the behavior and actions of the trader are still fresh on a day might be a better idea, as long as report card has proper structure!

Mind that a mistake that a trader could do is to make some sort of dynamic notations to performance on daily basis but there is no pre-thought structure to the report card (collecting same type of data every day) in such case the result will be complete chaos.

If trader is collecting data A on day 1, data B on day 2, and data C on day 3 there is no value that report card will give at the end of the month. Instead data collected needs to be all data A across all days, or if trader is collecting A,B and C type of data it has to be collected in such broad spectrum every day.


It happens in some cases where the trader gets a large negative or positive trading day and then notes down in a journal, this was great/poor day as I did this, this and that. But in reality, such notations provide very little value because to provide a value trader needs to consistently collect the same type of behavioral data to note the difference over time how certain actions support the data to the upside or perhaps undermine it to the downside.

This is a very common mistake that traders tend to make. Looking with a microscope too closely towards large days is often not a good idea, unless there is specific common issue/solution that causes them and trader has large sample base of those days to study from, rather than just one day here and there.



Chaotic notations of daily performance without properly thinking it trough might do more damage than not doing any journaling at all. The reason is simple. Because any single trading day and the actions taken can be over-blown by how significant their impact was on that day's trading performance, but in reality over 100 of cases they might be far less important, or turns out in many cases they might have a seemingly positive relationship over 1 or 2 cases, but over 100 cases they might bear a negative relationship to that trader's performance.


If one is doing report card, it is important to think it well trough on what should be collected in terms of data/actions/behaviors each day, and then to do it every day without a failure in between, for at least 50 days, but the more the better.

And I would highly discourage anyone to take too much of a draw of conclusions from report cards just from 10 consecutive trading days, this is a sure way to come to conclusions too early. Give it a space of 50 days at a minimum.

And it might depend on the individual, some traders are more consistent while others are more chaotic so it will depend from individual to individual on how in-depth and how lengthy should the report card tracking process goes. And essentially doing the daily report card is not necessarily just for beginner traders, it can be useful practice for more experienced traders as well since it can help to "guide" the trader towards the right path quicker as report card might quickly point out when (experienced) trader is starting to sway of the optimal path.





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