Tracking External Factors and Their Effects on Your Trading

We've been getting a lot of inquiries from equities traders interested in the TraderDNA Analyzer. Currently, the architecture of our program facilitates futures trading only. That said, TraderDNA accepts data from all products traded on the major continental futures exchanges (CBOT, CME GLOBEX NYMEX/COMEX, ICE, Eurex and Euronext/Liffe). All of our users trade products listed on one or more of these exchanges, and we will continue to add compatibility to additional exchanges as we deem necessary.

The purpose of this post is to discuss--at least briefly--what can be done manually, in lieu of using a program that will perform automated calculations and visual representations of the data, such as TraderDNA.

In my last post I introduced the concept of tracking certain external factors that could, naturally, affect the performance and thus the results of someone who spends at least part of the day in front of the markets. This is not complicated and can be done quite easily.

First you have to decide what exactly you'd like to track. I'll suggest a few factors that might be interesting.

How hungry are you at the beginning and end of the trading day?

Hunger can have a conscious or subconscious affect on your decision-making process (I will soon support this assumption and those following with empirical research as an addendum to this post).

Consider a situation in which a part of you wants to go eat and a part of you wants to stay at your desk and trade. You have no food within arm's reach of your desk and so you decide to stay in front of your screen. How does this affect your trading?

I liken this to being at a poker table and realizing that you are very hungry and thinking of something you'd really like to eat. All of a sudden part of you wants to go eat, and another part of you wants to stay and play. So you loosen your play thinking, perhaps subconsciously, that there is now something good that could come of losing your stack (the ability to go eat). You may have played diligently and followed a rigid plan for 2 hours but all of a sudden you are willing to stray from that plan and play atypically because of the perceived benefit that could come from losing.

Taking note of your level of hunger at the start and immediately at the end of the day could provide some interesting information if a correlation is made between level of hunger and results at the start and end of the day.


How tired are you at the beginning and end of the trading day?

Similar to hunger, being tired or having even the slightest desire to rest can affect how you trade and how you break the parameters of your system and decision-making.


How eager, excited, or interested are you to trade today?

This is something that could be taken note of at the start of the day. Consider that you have a survey of questions you fill out at the start of each day and this is one of the questions. The values might be "Not Eager", "Somewhat Eager", "Very Eager".

How does your level of eagerness or interest to trade affect the overall result of the day? It can be hard not to trade everyday if this is your living, but if you can make a correlation between your level of interest and the ensuing results of the day then the possibility exists that you could sit certain days out altogether so as to avoid losses to your trading account. You might find that you perform best when you show a lack of eagerness at the start, or vice versa.

Knowing ahead of time with at least some confidence that the coming day will be a loss can help you to dodge this loss or to determine if it's a good day to trade or not. You might not make this decision solely on eagerness/willingness to trade but after assessing other additional factors as well, such as your emotional well-being.


How do you feel about the state of your trading account right now?

This is another factor that can be tracked at the beginning of each day. Did you suffer a big loss on the previous day? Are you upset with the recent deterioration of your trading capital? Of course it can be difficult to be totally objective can be very hard to be objective with yourself in answering such questions but the closer you can come to giving honest/accurate answers, the better you can direct your trading. For example, would it be beneficial to sit out for at least some period of time?


Are you particularly frustrated, disappointed, or angry with a girlfriend, spouse, friend, or family member right now?

Select an answer to this question before you start trading for the day and track your answers as they relate to results of the day. Your choices might be as follows:

□ At peace with everyone right now
□ Somewhat frustrated or disappointed with one or more person(s) right now
□ Somewhat angry with one or more person(s) right now
□ Very frustrated or disappointed with one or more person(s) right now
□ Very angry with one or more person(s) right now.


What opinion about today's market direction (if any) do you have?

Does your initial opinion of the day's market direction or sentiment affect how you trade, and your results?

□ Very Bearish
□ Bearish
□ No opinion
□ Bullish
□ Very Bullish


What opinion about today's volume (if any) do you have?

Are you expecting there to be little volume today and anticipating that it might not be the best day to trade a particular market? How does your anticipation of action affect your involvement and results in that market?

____________________________________________________

Additionally, answering some questions at the conclusion of the day will help you take note of what type of day you've had. Reviewing cumulative results will help you assess on which types of days you trade best. ie, was it an up or down day, or was there a lot of chop in the market today?

If you can create standard answers (values) to the above questions and check the appropriate answers, those answers can become additional trackable factors that you can tag to each trading day. Currently you might track P/L, number of trades, contracts, etc. each day. Now you might track P/L, number of trades/contracts, starting/ending hunger level, starting/ending need for sleep, market direction, opinion of market direction, etc...

You don't need to be proficient with Excel or know VBA to keep tabs of the values in Excel, and calculations can be done manually after at least a couple weeks of tracking.

Use a different column in Excel for each question you ask yourself, as well as for P/L, number of trades, market direction, etc.



© Copyright 2007 David Adler
All rights reserved

All analysis generated with the TraderDNA Analyzer.