Like many successful traders, Dr Alexander Elder advocates all to keep a record of the executed trades. As the saying goes, “what gets measured, gets improved”. Hence, a proper record enables a trader to review and learn from the mistakes.
In “Come Into My Trading Room”, he recommends the following information to be captured for each trade:
1) Entry date
2) Long or Short
3) Ticker (stock symbol or the name of the contract)
4) Contract size
5) Entry price
6) Commission
7) Other fees
8) Total (Entry price x size + commission + other fees)
9) Channel Width
10) Exit date
11) Exit price
12) Commission
13) Other fees
14) Total (Exit price x size + commission + other fees)
15) Profit/Loss = Total (entry) – Total (exit)
16) Entry grade
17) Exit grade
18) Trade grade
The interesting items are no 16 to 18. Entry grade is calculated as a percentage to the day’s trading range. For a long example, if the low of the day is $10 and high is $11, and your entry price is $10.20, your entry grade will be 20%. The lower the percentage the better. The calculation of exit grade is similar but it is based on the exit price and the trading range of the exit day.
The trade grade is the amount of profits captured from the channel width. It is calculated by taking the difference of entry and exit price,
and subsequently express it as the percentage of the channel width. Dr Elder did not elaborate further how this channel comes about. It appears to me that it is more relevant for band trading rather than breakout trading. Hence, one way to make it more flexible is to consider the maximum move by the counter, and based on the entry and exit price, how much have you captured. The channel width should then be taken from the lowest point (after entry) to the highest point (before exit).
The essence of this trade grade is to assess how much profits did you capture from the price move. Of course, the higher the percentage, the better. Doing it consistently will prove your skill as a trader.
In addition, he suggests to include more information like the trading system/signal used and a short reflection why you entered the trade. Personally, I feel writing the reflection is the most effective way to evaluate your psychology in trading – impatience or impulse in trading will be surfaced.
If you want to improve your trading, record your trades dilligently and track them continuously!
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