How to Apply Trader Evaluation Techniques to Become a Better Trader

Trading firms often evaluate traders before hiring them.  One of the ways to evaluate a trader is to ask them about their biggest trading regret over the last six months.  When the trader describes the regret—which is typically a large losing trade, as the evaluator, I ask, “Tell me about what happened.  What made that trade go so badly?”

What’s Important

Actually, I’m not especially interested in what happened.  What I interests me is how the trader responds to a bad situation.  A lot of traders would make excuses like “the internet went down and by the time it came back up I was deep in a hole,” or, they may blame others for the loss – “The Central Bank acted and took the market down.  It should have gone up.  If it weren’t for the surprise bank action, I would have made money.”  Answers like this weed traders out.

However, I would be interested in traders who say, “I made a mistake.  I wasn’t sure what really happened until I went back and analyzed what I did.  I found I held onto an assumption that wasn’t warranted.”  These traders accept the responsibility that they made the error and worked to figure out why.  They embrace adversity rather than run from it.  This is the best attitude to cultivate if you want to become a better trader.

Avoiding Your Mistakes is Detrimental

Many traders sweep mistakes and losses under the rug.  This is never a good idea.  Confronting shortcomings is painful, but hiding them only ensures you will experience them—and their pain—again.

What Truly Matters

Another way to interview potential traders is to ask them to talk about something in their trading that they are particularly proud of, again, over the past six months.  Many will talk about great trades that were made.  They would explain in detail a time when they performed especially well.  That’s understandable.  We all like to let the brilliance shine.  But it is the quieter, less flashy things that really matter in the long run.  When someone tells me that they are most proud of the effort they put into their trading over the last six months, I sit up and take notice.

Where to Place Your Focus

As traders, our focus should be on the things we can do every day to bring our trading to a higher level.  These include our daily work, practice trading to improve specific trading skills, studying charts and market movement, addressing limitations in our trading performance, and thinking about ways to deal with challenges and become better traders.  Here are a few ideas on how to do this:

  • Quality of daily work.  Daily work might include activities such as practice trading, preparing for tomorrow’s trading, annotating charts, making notes in your trading journal, researching trade ideas, and other routine activities you do each day.  Assess the quality of your daily work in a straightforward way and note in your journal: My work today was high, average or low quality.  Strive to make every day a high quality day.
  • Track your effort each day.  Effort directly affects skill acquisition and improvement.  Rank your effort on a scale of 1 to 5 where 5 is high effort and 1 is very poor effort.  Track your effort over time.  Take an average of your effort each week and if it is low, work to improve it. 
  • Take initiative.  Look for ways to improve.  Ask, how can I do better and lay out the specific steps you can take.  Other ways of taking initiative include asking such questions as, “What can I learn from this?” when a trade goes bad or you made a mistake.  When confronting a significant challenge, don’t run from it.  Take initiative and ask yourself, “Is there a way I can approach this challenge in a constructive and fruitful way?”

The things we pay attention to, measure and record are the things that get better.  Try this for a month and see what happens.

For more insight into the mental game of trading, you are invited to the author’s website where helpful, free tools are available for you, including a free, seven-part guide on trading psychology many traders have found useful.

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