When a trader misses a trading opportunity, they run the risk of skewing the expectancy of the trading strategy and can turn a true winning system into a losing one.
As you may know, the traders at Netpicks take trading logs seriously – to the point that we actually give away an excel trading log you can use. When I wrote 3 Tips to Improve Trading Performance Now , I talked about the importance of tracking every trading error you make because that is the only way we can find out how we as traders can improve.
What is often overlooked that can also have a serious impact on your trading performance is missing trading opportunities and how that can affect a winning trading strategy.
Your Trading Performance Reality
When you did the required testing on your trading strategy and trading plan, you were no doubt diligent in ensuring that every trading opportunity that showed up that followed your trading plan, you logged that trade.
After a large sample of trades where you were consistent in logging your trades, you found you were trading a positive expectancy system and over time, you would make money.
Real life trading is different especially if you are part systematic and part discretionary in your trading approach.
Perhaps it was lack of focus, work commitments, or were simply distracted, some trades were missed. Too many missed trades will create a big performance discrepancy between back-tested and actual trading results.
When I talked about tracking errors, that was so a trader could come to grips with the issues and look to fix them.
Logging missed trades has the same result. Only by looking at the trades you missed can you look to solve this problem. Even if it was a one off mistake – log the missed trade even in your trade journal.
By doing so, you can figure out why you missed a certain opportunity.
- Tired and unfocused?
- Distracted by other markets?
- Up or down on the day and called it quits?
Whatever the issue is, taking notes at the time of the missed trading opportunities is going to help you pinpoint any recurring themes.
Miss too many trades, especially the large winning trades, and your inconsistency will turn your positive expectancy trading strategy into a losing one. Given that a true trading edge is hard to find in the markets of today, being consistent with a proven trading strategy is vital.
Missing Trades Can Cause Chased Trades
Another important reason you’ll want to minimize the number of missed trading opportunities is a psychological one. In Why Pros Don’t Chase Trades we touch on the fact that when you miss a trade, it’s easy to be sucked into chasing the market.
The fear of missing out can create strong trading urges and put you in situations where you’re taking what you recognize as poor trades. Of course, there are always chances that realistically we can’t take advantage of – but those that we miss when we shouldn’t have are the ones that can trigger emotion-based trading.
The danger with missing a trade and then chasing a trade is the chased trade becoming a winner. Being rewarded for what can only be described as trading errors can set you up to having your poor decisions reinforced. It is only a matter of time before those errors take you out of business.
Money – It’s Why We Trade
Clearly money is a big motivator in trading. Losing money or missing out on money tends to be easily forgotten if you don’t have strong performance tracking and review routines in place. Part of this could be down to the ambiguous nature of some discretionary trading methods and part of it is because memories where strong emotions are involved, tend to get blurred.
However, by pinpointing exactly what you’re doing that’s holding your trading performance back, there’s a huge incentive to lean on your findings rather than your trading urges. It sears reality into your mind so it’s hard to forget.
Missed Opportunities – Don’t Let It Happen
By remaining disciplined enough to track these missed trading opportunities on a daily basis and shrewd enough to identify exactly why this happens, you’ll be adding a new dimension to your trader performance analysis. In markets such as Forex, it can be difficult to hit every trading setup seeing as Forex trades around the clock.
With the case of trading Forex, you must dictate in your trading plan and in your testing, which sessions you will trade and for end of day traders, which time will you consider EOD.
Once you understand how to take the trades that the market offers you on a more consistent basis, you’ll elevate your performance to the next level.