Trading Psychology: Rewire Your Brain for Maximum Performance in Today’s Markets

By Scott Redler

Chapter 6: Study Your Own Trading History, and Forgive Yourself

“I never lose. I either win or I learn.”
-Nelson Mandela 

If you were hoping for a soft, cuddly chapter… I’m sorry to disappoint you. I’m going to ask you to do more work, but trust me, it will be worth it. In fact, this chapter might be the most important one in this Trading Psychology guide, because it can have a tremendous impact on your P&L. 

There’s an old saying in business “what gets measured gets managed.” If you measure your results, you can better manage your behavior for the future. But most traders do not measure anything beyond their overall P&L and the trades they have on right now.

But if you want to get serious about your trading, you must take a deep dive into your history. You need to really learn about what’s been making you money, and what’s been costing you. This is time-consuming but worth it. If you want to make an immediate improvement in your trading, you’re better off doing this than reading 100 books on technical analysis. And it will improve your mindset because you’ll start to take control over your future.

The first thing you need to do is take all your trades and dump them into a spreadsheet. The more, the better. And you need to include periods where you made money and periods where you lost.

Start with the top 10% of trades that made you money. What made those trades work? Were they mostly longs or shorts? Were they ETFs? Were they stocks in a particular sector? Or were you just really good at trading one particular stock? 

You should be able to make a list that looks something like this:

My Best Performing Trades:

  • Were to the long side
  • Were in large cap tech stocks like Tesla (TSLA), Apple (AAPL), and Nvidia (NVDA)
  • Lasted 14+ days during market uptrends

Wouldn't it be helpful to have this type of information?

Why does Steph Curry shoot so many 3-pointers?

You know the answer... it's what he's good at! 

Next, go to the bottom 10% of your trades. These are the trades where you lost the most money. What did you do wrong? Were you shorting uptrending stocks? Did you tend to lose on options trades? Did you average down on losers? If you find that you keep losing money when shorting strong stocks, that’s something you need to know.

You could end up with something like this:

My Worst Performing Trades:

  • Were shorting stocks trending above the 8 & 21 day moving averages
  • Were in small caps, energy, and industrials
  • I averaged down after they declined
  • I held stock into earnings

So right then and there, you have a roadmap to a better P&L. You do less of the bad stuff.

It’s not easy to break bad habits. But when you see the dollars bad habits cost you, you might get motivated to take action.

Think about the math. Let’s say you want to make an extra $100,000 trading next year. It is far easier to make fewer mistakes than it is to find another $100,000 worth of wins. For example, you could stop buying downtrending stocks. You could stop averaging down losers. You could avoid the sectors that just never seem to work for you.

"It's easier to avoid $100,000 in mistakes than it is to find $100,000 in new wins." #tradingpsychology

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If you want, you can also look at the middle 80% of trades, but the top and bottom 10% can tell you an awful lot about what you’re good at, and where you need to improve. 

You would be shocked at how many otherwise excellent traders get tripped up because of a small number of bad habits. A lot of traders lose tens or hundreds of thousands of dollars a year because they can’t resist doing one or two bad things. And the worst part is, they’re not even aware of what’s really costing them money!

On the positive side, look at your trades that really worked. How can you find more of those opportunities? How can you put on more size in those situations? These are the questions that can really explode your P&L. 

If you do this exercise, you should have a pretty good idea of your strengths and weaknesses. You will have the most valuable kind of inside information - information on YOU! 

By understanding what’s worked and what hasn’t, you’re going to feel a lot better about yourself. Why? Because you did something that’s downright scary - taking a hard look in the mirror. And you now have a personal roadmap for improvement.

But, there’s another step you need to take. You need to forgive yourself for what’s gone wrong. We’ve all made mistakes that have cost us money.

But we can’t turn the clock back, no matter how much we want to. So there’s no sense in punishing yourself. Letting go of the past is a critical part of trading psychology. Start working on it now.

Action Item: Action Item: Write Out Your Do/Don’t Lists

Make two lists. The first list contains things that have made you the most money in the past. The second list includes what’s lost you money. They should look something like the samples I showed above. Put them both on one sheet of paper, and post it by your computer. If you really want to let things sink in, read your lists out loud every day. 

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