Full Traceability

You should be able to trace back in time the precise reasons for a particular trade or trading action. For example, you should be able to recall why you made a particular trade or move. If you have a well-defined mechanical system, and you follow a strict policy of no exceptions, then you have assured traceability.


246A System for Trading

If you use subjective chart analysis, then the best way to understand your trading patterns is to keep a diary and a copy of your charts. You should record all the emotions and analyses you used to make a certain decision.

If you have no traceability, you will have little information to monitor your implementation, and you will lose valuable information that could improve your trading. Let's assume you have a tendency to get in late and get out too soon. If you do not keep detailed records, it is difficult to correct such tendencies. If you have good records, you can calculate the impact of your late entries and early exits. Specifically, you can determine the type of market conditions that push you into exiting early. Say you find that a sharp 3-day sell-off often pushes you to exit your trades. Then, after a brief consolidation, the markets have resumed their previous trend. You now have reliable information you can use to overcome your fear that every 3-day countermove is going to escalate into a major correction.

Traceability is also important if you notice errors in your account statements and want to get them corrected. For example, your broker may fail to report a fill, or give you a fill far away from your desired prices. If you have good records, it is relatively easier to make the changes you desire. If you called in to check a fill and were given a certain fill price, but your equity run shows a different fill price, or worse, does not show a fill at all, you can correct such mechanical errors if you keep good records.




Summary | Introduction | Channel Breakout on Close with Trailing Stops | Channel Breakout on Close with Volatility Exit | Channel Breakout with 20-Tick Barrier | Channel Breakout System with Inside Volatility Barrier | Statistical Significance of Channel Breakout Variations | Day Exit Reference System | Two ADX Variations | The Pullback System |

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