The Value of Assessing Past Performance

The more we know about our past performance , the more we can put odds in our favor going forward.

The more we know about why profit and loss happened in the past, the better we can work to adjust and modify our parameters and decision making process so as to participate at times and under situations that have historically been profitable. Alternatively, the better we can avoid situations and types of trades that have generally caused losses in the past, the less loss we will have going forward.


Past performance is indicative of future results.

You might be thinking, "what good will knowing what has happened in the past be? The markets are ever-changing and every day is a new day. Past performance is not indicative of future results, right?" Well, not really...

Knowing what our performance has looked like historically is extremely valuable. Every trader has some type of system, some method for getting in and out of the market. Most traders adhere to some set of parameters by which they might execute orders if and when a cue is received. These cues can be determined by anything from the accumulation/distribution of bids/offers, some other technical indicator, support/resistance lines being approached/broken, what another market is doing, or even a talking monkey that gives cues to buy and sell at certain times. There could be any number of reasons why someone trades at any given point. The important thing to note is that every trader has such parameters that dictate and greatly influence decisions to buy or sell when and where.

These parameters, and how a trader reacts to them and uses them to form a decision, are what make up the trader's DNA. I hate to be cliche or esoteric here but it's a fitting analogy.

The trader's behavior is more predictable than the market's. We know what we would do if and when something were to happen. We might do different things for different reasons all the time, and maybe our parameters are not entirely defined and controlled, but there's some commonality in everything Trader A does. There's a different commonality in everything Trader B does.

Yes, markets change everyday. They go up and down, at different speeds, at different times, to different degrees, on different volume, and for different reasons. But each market has it's own character, it's own speed, it's own dynamic price action. At some point every trader has seen something occur in a market that is "uncharacteristic" of that market. So markets have character too. We expect markets to act and react in certain ways because historically they have repeatedly acted in such a way.

The trader and the market are two systems interacting with each other. A trader's efficiency in interacting with the market lies in his knowledge of his own system, and of what generally works and what generally doesn't work.


1. If quality and productivity are to improve from current levels, changes must be made in the way things are presently being done.
2. We should like to have good data to serve as a rational basis on which to make these changes.
3. The twin question must then be addressed: what data should be collected, and, once collected, how should they be analyzed?

-W.G.Hunter






© Copyright 2007 David Adler
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