The two most basic ratings for every trade are the buy and sell grades, which measure the quality of your buying and selling. Tracking them will help you increase your level of competence in entering or exiting trades, whatever their outcome.
You can measure the quality of your buying and selling by comparing your transaction price to that day’s range. When you buy, you want to trade as close to the low of the day as possible. When you sell, you want to trade as close to the high of the day as possible.
The result is expressed as a percentage: if you buy at the low of the day, your grade is 100%, and if you buy the top tick, your grade is 0. Grades below 25% are poor, above 75% superb, and between 25% and 75% satisfactory.
The result is expressed as a percentage: if you sell at the top tick of the day, your grade is 100%, and if you sell at the bottom tick your grade is 0. Here too, you want to score above 75% for an excellent grade, while anything less than 25% is poor.
Whenever I trade, my goal is to score above 50% on my entries and exits. This means buying below the midpoint of the day and selling above the midpoint.1 A non-trading market analyst said to me once that a person who placed his trades at random would average 50% of the day’s range. Far from it! An entire industry of professional traders makes a living from buying low and selling high. When the insiders and the professionals take the lowest buys and the highest sells, the public is left to buy high and sell low. Grading your entries and exits makes you focus on your executions, and that leads to a better performance over time.
If you now return to Figure 3.1, you will understand the meaning of columns U and V. They grade the quality of my entries into and exits from the trades shown in that spreadsheet. Just keep in mind that in long trades the entry is a buy and the exit a sell, while in short trades the sequence is reversed—first a sell, then a buy.
It may seem like an easy task—to buy in the bottom half of a bar and sell in the upper half—but it is surprisingly hard to accomplish. Psychologically, it is easy to buy high and sell low. Keeping a score of your entries and exits and following their trends to measure your progress makes you a sharper, more demanding, and more successful trader. Knowing that at the end of the day you will have to grade your trade helps restrain you from chasing intraday rallies or selling into intraday declines.
You can measure the quality of your buying and selling by comparing your transaction price to that day’s range. When you buy, you want to trade as close to the low of the day as possible. When you sell, you want to trade as close to the high of the day as possible.
The result is expressed as a percentage: if you buy at the low of the day, your grade is 100%, and if you buy the top tick, your grade is 0. Grades below 25% are poor, above 75% superb, and between 25% and 75% satisfactory.
The result is expressed as a percentage: if you sell at the top tick of the day, your grade is 100%, and if you sell at the bottom tick your grade is 0. Here too, you want to score above 75% for an excellent grade, while anything less than 25% is poor.
Whenever I trade, my goal is to score above 50% on my entries and exits. This means buying below the midpoint of the day and selling above the midpoint.1 A non-trading market analyst said to me once that a person who placed his trades at random would average 50% of the day’s range. Far from it! An entire industry of professional traders makes a living from buying low and selling high. When the insiders and the professionals take the lowest buys and the highest sells, the public is left to buy high and sell low. Grading your entries and exits makes you focus on your executions, and that leads to a better performance over time.
If you now return to Figure 3.1, you will understand the meaning of columns U and V. They grade the quality of my entries into and exits from the trades shown in that spreadsheet. Just keep in mind that in long trades the entry is a buy and the exit a sell, while in short trades the sequence is reversed—first a sell, then a buy.
It may seem like an easy task—to buy in the bottom half of a bar and sell in the upper half—but it is surprisingly hard to accomplish. Psychologically, it is easy to buy high and sell low. Keeping a score of your entries and exits and following their trends to measure your progress makes you a sharper, more demanding, and more successful trader. Knowing that at the end of the day you will have to grade your trade helps restrain you from chasing intraday rallies or selling into intraday declines.
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