Like Moths to a Flame

by Tyler Craig on July 27, 2011

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Does constantly monitoring your account value aid or hinder your performance?

I suspect for most traders it acts as a distraction.  While keeping tabs on the overall PnL of your portfolio may seem like the prudent approach, it often causes you to do things you wouldn’t otherwise do were you simply focusing on executing each individual trade with precision.  For example, if I glance at my account value and see I’m up a notable amount on the day, week, or month, it may tempt me to quickly exit profitable positions.  Thus, rather than managing each trade based on their individual merits and the original plan,  I allowed my account value to adversely influence my decision making.

Unfortunately, you can’t “watch” a portfolio higher.  Improve the process and the results will follow.

While I’m an unapologetic advocate for steering clear of obsessive account value monitoring on an intraday or even day-to-day basis, one must obviously check-in on the account’s health to determine whether any loss limits have been hit.  If in an attempt to stem the flow of your loss spigot you develop rules to stop trading for the week or month if you lose a certain amount of money, then it’s necessary to assess the account value periodically.  The key is to avoid doing so when it will adversely impact your ability to execute your original plan.

When I used to display the account value in full view on my trading platform, my eyes would inevitably be drawn to it like moths to a flame.  To avoid the distraction I’ve moved the flame out of sight.  Out of sight out of mind, as they say.  Proper execution and plan following now receive my undivided attention.

For related posts, readers can check out:
Land Mines and Losing
The Risk Management Game

{ 1 comment… read it below or add one }

Steve B July 27, 2011 at 2:12 pm

Great post Tyler. I always liked how Mark Wolfinger put it. Don’t evaluate your trades based on the P&L, evaluate each trade by asking yourself if it is still the right position to be in. I know in my paper account I am quick to pull the trigger on profitable positions bc I watch the P&L.

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