Evaluating a Past Trade

It’s important to approach each trading opportunity individually, with a fresh perspective of the market and refined trading approach. When a trade is complete, a prudent trader will assess what he did right and what he did wrong. This type of evaluation should occur regardless of whether the trade was a success or not. The purpose is to realize a trader’s strengths and weakness. A trader should utilize these to customize his approach in the forex market.

How to Evaluate a Trade

There are three areas to gauge when reviewing trade history.

1. How was the trade opportunity identified?

What approach was used to select the trade? Was the trade based on technical analysis or a fundamental approach? Review which approach tends to lead to more successful trades. The identified approach may be a trader’s strength and more time should be spent developing it for future winning trades.

2. How well did the trade plan work?

Evaluate all aspects of the trading plan. As a result, future position sizes, entry levels and order placements may alter depending on the trader’s success. Taking time to do so helps eliminate the same mistakes from happening twice.

3. How was the trade managed after it was opened?

During the trade, was the trader able to monitor the action of the market? Did the trader carry through his original plan or did he adjust it along the way? Answering these types of questions honestly will reveal possible trade weaknesses. An alteration of trading plans may be due to a trader getting too emotional about the trade. If the market wasn’t adequately monitored, this indicates the trader’s lack of dedication or availability to follow up with a trade.