This is my first choice for “critical dissection” as the surgeon might say!
My first take-away from this is if Langers has been a successful full-time trader for a good number of years and still uses these kinds of analytical spreadsheets then they are definitely worth taking a serious look at!
I would place a good-sized bet that Langers did not have these current spreadsheets at the start of his full-time trading and that they have grown and expanded over time as requirements developed. Therefore they really do play an essential role in consistent trading.
My second take-away is that doing this kind of research and analysis of one’s trading emphasises that trading is a business just like any other type of business. This depth of analysis and preparation, in addition to the basic trading method used, defines the difference between running a successful professional business and trading like a casino gambler…and actually requires more time and devotion that the actual triggering of trades.
Although Langers presents a very detailed set of spreadsheets here, that does not mean everyone needs to copy the same style and content. Trading is a very personal business and comes in many shapes and sizes. But there are some common underlying principles and issues that I think are worth highlighting:
Whatever style of trading one undertakes, it should be treated like any other type of business. i.e. there should at least be:
a clear and practical business plan stating the overall objectives, methods, risks, and management processes that will define how business (trading) will be executed. Langers shows an example of this in his own spreadsheets by defining and separating his day trading (monthly/annual income targets) and his swing trading (long term savings, pension, etc). A beginner probably does not need such complexity in the early stages.
a detailed execution plan describing how and when individual trades will be entered and exited, the rules concerning risk exposure, and what information needs to be collected from the trades. For example, Langers states his pip value, max% exposure, win rate, rules followed, mood, etc. In my own execution plan, for example, I collect data on how many trades hit target, hit stops, closed manually, reverse signals, the max distance each move traded actually reaches, etc. It all depends on what is useful.
a periodic profit/loss statement detailing all trades and any information relevant to each. This can be weekly/monthly, for example, and allows comparison of achieved results with the business plan objectives (under/over performance), reasons for good/bad results. There is no point in just listing trades if it does not tell you anything. There has to be some add-on value. This creates the opportunity to periodically review and revise methods, instruments, risks, targets and so on.
Having said that, I don’t think that such a business plan should form a tight straightjacket, tying you into a set of parameters that stifles creativity and limits taking advantage of opportunity.
In a way one can think of these trading plans and reviews as a form of Project Management. All projects have a defined end result and a detailed plan of how it will be achieved. But projects often deviate from the original plan and the skill of the Project Manager is observing the reasons and reacting to them in order to keep the project on course. In our case, this may mean regularly evaluating the instruments we select, our timeframes, our targets and our exit strategies, etc.
This is a big topic and really deserves its own thread, but the aim here (as Langers says) is just to inspire and encourage others to think about these matters and decide what is necessary and sufficient to control their own trading.
One last point. It is also worth remembering that your trading account balance is not your bank account. It is only your business “warehouse”. It is the “goods” that enable you to do business .and this means two things:
- It will inevitably go up and down with wins and losses – and that is not a problem when the losses are according to the business plan and when the overall level of “stock” in the “warehouse” is stable or increasing. Losses are not failures, they are overheads. And all businesses need to manage and control their overheads. Losses are only a failure if they result from bad management.
- The more you grow your trading account (the more"goods" in your “warehouse”), the more trading opportunities you can take. Obvious really. Your trading account balance is a business asset not a salary. Trading profits are only salary once they are drawn out and transferred to your bank account.
Retail traders are usually sole traders, which means you are simultaneously, Managing Director, Finance Director, Production Manager, Systems Manager and shop floor worker. Perhaps the only task that one can actually delegate – if one is lucky – is the coffee making!
Anyone else any thoughts on this? Feel free to comment!