A challenge to the non-day traders amongst you. – Another fine post from Peter Brandts Blog

This is another great blog post by Peter Brandt.  I would heartily recommend you read and take action accordingly.

Enjoy

Get ready for a big surprise!

If you are a successful day trader, this post does not apply to you. However, if you are unsuccessful as a day trader, then this post might be what you need.

Here is my challenge:

• Start a paper trading account — some brokerage firms even offer hypothetical accounts in which hypothetical trades can be made. Otherwise you will need to just keep a log using Excel or a similar program. The hypothetical account needs to be the same approximate value as your real trading account.
• Write down each day the specific orders you would want in place the following day (or you could make the orders good for the 24-hour session). But, you can only plan your trades at a specified time of your choosing. Once you log the order you cannot change it for 24 hours. It may be that your order specifies a price. It may be that your order specifies very detailed “if this, then this” contingencies.
• You will need to also log your protective stop price or procedure if an entry order is triggered, as well as any exit targets.

Keep the log for a period of three months. After three months compare the performance of the hypothetical account to your real account. If your real account does consistently better based on your intraday decision making, then this is a sign that your constant attention to the markets during the day provides a value added to your performance.

If, however, your hypothetical account does better — and I believe that for the vast majority of you it will do much better — it is a sign that you need to enter your orders and turn off your screens. It will be an indication that market noise and the pull of your emotions are obstacles that you will need to get past.

I want to hear from all of you three months from now. In fact, if you want to give me a month-by-month report with comments I may post some of the information I receive. I may actually develop a polling tool on the blog for your reporting.

Good luck and good paper trading. I think many of you will learn a lot from ths experience. Remember, you need to trade both your real and hypothetical account for this to work. No fudging on either.

Peter