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Trading Education Posted by Team Topstep December 27, 2022

A Trader’s Guide For Self Reflection

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It’s that time of year again. If you are like me, you have some personal and professional reflections on 2022. It seemed like another year flew by. I look backward, asking myself, “Where did the time go?” Professionally, I evaluate the outgoing year realizing that 2022 offered some tremendous trading victories. However, I also recognize that I wasn’t the best trader I could have been.

The start of a new year is an excellent time to set goals and make forward-looking plans, which I’ll discuss in the following article. However, for now, it is fruitful to look backward and discern the lessons of the near past. 

While every year often feels unique, 2022 was genuinely distinct. We spent the first quarter of the year leading up to the beginning of the war between Russia and Ukraine. I recall my most disappointing trading during this quarter. In Q2, commodities continued to climb, adding tremendously to inflation concerns. 

In Q3, central banks played a critical role in determining how they would respond to the significant global inflation problem, with some banks employing aggressive strategies. Meanwhile, the most recent quarter has been consumed with economic forecasts focused on impending potential recessions and how widespread their impacts might be. Of course, Q4 in the United States involved concern regarding the mid-term elections in November as well.

All of these factors generated unique market behavior throughout the year. Some traders have enjoyed their best year; others have experienced the worst that this environment had to offer. Whether you are closing this year with glee or disappointment, this article will offer some elements to consider as you reflect upon this soon-departing year.

Factors To Reflect On

Now, keep in mind, with trading, as with most anything in life, the material here should be considered both universal and adaptable. It is universal in the sense that any trader can use the conversational aspects of this article to engage and reflect upon their performance perspectives for this year. 

However, being adaptable implies that the content is flexible, leaving you with the power and opportunity to eat the meat (so to speak) while spitting out the bones. In other words, because traders are each unique, it’s up to you to interact with this article in a way that can most benefit you. 

Okay, so now that we have established that, let’s now consider some factors while reflecting upon your 2022 results.

How’s The Volatility Treating You?

For some, especially traders with less experience, the likelihood is that you met trouble when you encountered last year’s volatility. Some may have even surrendered quickly, thinking they might never be productive navigating the markets. The important thing is to have perspective. In other words, just as you should never judge yourself according to the best market environments or your best results, you also should not use the worst market conditions or your poorest trading as your barometer. Instead, take a balanced approach. 

I knew a trader who started in the second half of 2021 and learned many a good lesson, but gave up after the first half of 2022 when encountering increased volatility. If this is you, then it could be worthwhile to reconsider. After all, you would be judging yourself based on trading results at a time when even otherwise successful traders have struggled and even lost. If you are one that has faced giving up, stay tuned and consider how your perceived failures may turn into a provision for success.

Alternatively, you may have enjoyed 2022 immensely. However, taking a balanced approach means realizing that success in volatility can generate a false sense of security. For example, I know a trader who gained what, for almost all traders, would be a once-in-a-lifetime stream of success during this year’s volatility. However, when this trader’s market began to shift and slow down in recent weeks, he gave back severe gains. This is why we don’t only judge ourselves according to the best of times.

The next segment will provide further food for thought no matter how you fared during 2022’s volatility.

Strength in Weakness

I often recommend keeping a daily trading journal, as it makes it easier to inventory your year in review. Even if you didn’t keep such a journal, many trading platforms permit you to export your account data to spreadsheets determining your winning and losing days along with the pertinent details. However, if you don’t have such a tool to export your results, I’ve found that traders who manually recorded their data at the end of the year found critical information that helped them going forward. 

For example, even if you were on a losing trend during the volatility seasons of 2022, you may still be able to determine what variables led to your best and worst performances. In addition, some traders who think they failed miserably will later examine their track record and realize that if they had only not traded the first thirty minutes of the day’s session, they would have actually been a success. 

Alternatively, their results would have been successful if they had not traded just before and immediately after news reports. These are just two examples. A host of variables and factors affect the distinction between successful and losing trading. If you can find the silver lining in your discouraging results, then you will have found an opportunity to turn your losers into winners going forward.

Weakness In Strength

If you are one that found yourself enjoying this year’s great bouts of volatility with matching P&L results, then you also have something to consider. After all, sometimes, as much as we wish it would, volatility doesn’t last forever. So whether the volatile price action continues or quiets down, you can find areas to explore that will help better your results.

In the same way that I recommend that traders analyze their results in the previous section, I encourage you to inventory your results and determine your weak points. Simply put, there are times of day (or of the week) and possibly certain markets that you traded with less desired results. The best way to improve your status going forward, and protect yourself in the volatility decline, is to be aware of what you could have done better.

Are You Adaptable?

Sadly, I’ve seen too many traders give too much profit back because they were slow to adapt during transitions from fast trading periods to slower times. Inversely, I’ve seen traders suffer because they were unable to adjust their approach from low volatility to market spikes. Of course, we always attempt to be ready for what’s around the corner; however, if we have underperformed in times of market shift, we must consider how we can become better attuned to a market’s changing personality. 

Other Vital Questions

As you reflect on 2022, there are other factors to consider to prepare yourself for the coming year. 

Which markets did you trade best?

Sometimes the kindest thing to do to yourself is to abandon the markets you trade most poorly while enhancing your skills in the markets more suited for you. Of course, there are reasons why this is difficult for some traders. However, if you are determined to stay in a market that you underperform in, then you must have a legit reason why.

How did your rules work out for you this year?

All of us should have a set of rules to follow that keep us out of bad trades and trade management and keep heading toward good trades and trading management while incorporating an intention’s risk-to-reward. There is no time like the present to examine your rules and detect which parts need re-evaluation and would benefit from being tweaked. 

Which tools served you well and which poorly in 2022?

For example, I know some traders that examined economic (fundamental) reports and traded based on a bias that never seemed to totally work out as they looked for a robust market crash anticipating a huge recession. 

Meanwhile, others found their technical analysis didn’t quite pan out this year. Whatever tools you use to give yourself an edge, whether they are sophisticated paid products or simple trend lines, you might consider how well these tools have benefited you by working in your favor. If they took up your valuable attention and detracted value, it might be time to move on. 

There are so many more things to consider; this really is a small list. Hopefully, some of you will contribute by sharing in our social communities and engaging each other with ideas for how to self-analyze your productivity in 2022. Stay tuned for the follow-up article that will discuss how to set yourself up with obtainable goals in the upcoming year. 

Until next time, trade well!