If you read my article about Pareto charts, this will probably make more sense to you.
Another tool that traders could use is root cause analysis. I know that some of these things don't seem to have anything to do with trading, but they can help you do better. In the end, what matters is how things turn out.
On your pareto chart, you can see where your trading style is weak. By figuring out what caused them, you can start to fix them.
First, we need to figure out the main reason why trades fail. Once you know what this is, you'll need to write it at the top of a new sheet of paper. You will ask a question below this. What made her act this way? The answer is then written down. Now, ask the same question about this new answer. List it. You will keep asking yourself this after each answer until you can't think of any more. Most of the time, you won't be able to go more than 3–5 levels deep. This is the real problem. This is the first step on the way to making a bad trade.
When you've found the cause, you still need to ask one more question. How do I stop this problem from happening?
If it's an emotional issue, you might need to work on becoming more aware of the feeling that makes you make bad choices. When you start to feel this way, get out of your trades and stop trading for the day. If you trade and lose, it's better not to trade at all.
If the problem is mental, you might need to find a routine that helps.
A baseball pitcher is a good example of this. A pitcher in the major leagues has to meet all the physical requirements, or else he wouldn't be there. Some pitchers are known to have strange habits that they do before each pitch. Some pitchers have had bad years because they changed something about their routine. Their bodies are still the same, but their minds have changed. Their routine is only in their heads, but if it changes, the results are all too real.
Obviously, if the system is the problem and the fix is obvious, you should get rid of it.
