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There Are Only 4 Types of Trade


Do you keep a trading journal? Do you record each and every one of your trades? What do you actually record?


Recording whether or not you’re trading according to your plan is more important than recording wins and losses.


Let’s assume you have a trading plan. You have a trading method you are happy with, you are confident that it gives you an edge in the markets, which over the long run will give you a positive expectancy and profits.


But, you still keep getting to the end of your reporting period (week, month or year), frazzled and not as successful as you’d like. You know you’ve deviated from your plan and you’ve got stressed along the way.


Let’s also say you have been keeping a trading journal, recording the mechanics of each trade and whether they are wins or losses. You have even been recording your state of mind, feelings and emotions before, during and after your trades. So, what have you been doing wrong?


Nothing, it’s all good. Keep doing what you’re doing. Just ask yourself honestly when you traded according to your plan and when you didn’t, because each and every trade falls into one of the following categories:


Trade Type Number 1: The plan trade that’s a win


Most trader’s favourite, this trade gives us a warm feeling inside. See this as a good opportunity to have a look at what went right in your decision-making. What was your state of mind when you took the trade? How could you replicate that state of mind in the future?


Trade Type Number 2: The plan trade that’s a loss


This can make traders a little grumpy but you traded according to your plan so this is a cause for a pat on the back. You want to set up a positive feedback mechanism so that you continue to trade to your plan, so see this kind of trade as a good thing. Reward yourself for following your plan.


Trade Type Number 3: The non-plan trade that’s a win


This is a sneaky little horror because even though you traded “badly” you got rewarded for it. This is not a good thing for your long-term trading success because an unhelpful feedback loop has just been strengthened. So, if you ever hear yourself say “I know this is non-plan but if I win it’ll just be a little bonus and I won’t do it again” just remember that the damage done with these types of wins can take a long time to reverse.


Trade Type Number 4: The non-plan trade that’s a loss


This trade will become your new best friend. Every time this happens, consider it a hard rap across the knuckles. Enough of these trades will see you deviating from your plan less and less, reducing the unnecessary leaking of your trading account.


Looking at each trade in this way will give you a different perspective and take your focus from whether or not the trade made you money, towards the importance of whether you traded according to your plan or not.


If you really don’t know if you traded to plan or not, then your plan is too complex. Get it simplified sharpish. You've got enough mindset stuff to be getting on with without the added stress of a complex trading plan!



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