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.

246 A 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.