You know it’s wrong, but you do it anyway—and then regret it afterward. In the last lesson, we talked about this frustrating tendency to “do something even when you know it’s wrong.” It actually has a technical name: the disposition effect. But simply knowing you’re prone to this mistake won’t stop you from making it again next time. To turn a mistake into a real lesson, you need to do something that sounds tedious but is actually one of the most useful things you can do: review your trades.

What does it mean to review your trades? Put simply, after completing a series of trades, go back and examine each one, checking whether the reasoning behind your decision still holds up today. Note that you’re checking the “reasoning,” not the “profit or loss.”

First, the easiest step to skip: keeping records. Many people only remember how much they made or lost. Ask them why they bought or sold, what they saw at the time, or what rules they followed to enter, and they can’t remember any of it. That makes it impossible to review a trade properly. At a minimum, record four things for every trade: why you entered, why you exited, what your reasoning was at the time, and what the outcome was. Leave out any one of them, and the trade becomes a mystery. Here’s a scenario you can picture: three months ago, you bought a coin. Today, all you remember is that you “lost money.” But did you enter because you saw the weekly chart break through a certain level, or because someone in a group chat called it? Did you exit because your stop-loss rule was triggered, or because you panicked and cut the position? If you don’t write these things down at the time, there’s a good chance you’ll make them up later—and you’ll make them up in a way that makes you look good.

Second—and this is the central point of this lesson—the key to reviewing a trade isn’t “I lost money on this one,” but “Would my reasoning at the time still hold up if I did it again?” The same loss could mean the rule you relied on was flawed, the rule was sound but the trade didn’t play out this time, or you simply didn’t follow the rule. These three situations call for completely different responses. The first two mean changing the rules; the third means changing yourself.

So, third, divide losses into three categories: bad judgment, poor execution, and bad luck. Bad judgment means your reasoning was flawed to begin with. For example, you entered because an indicator showed a bullish crossover, but looking back, you realize that indicator doesn’t work on that timeframe. Poor execution means your reasoning was sound and you had a plan, but you didn’t follow it: you failed to stop out when you should have, or exited early when you should have held. Bad luck means your reasoning was sound and you followed through, but the outcome just didn’t go your way this time. You can only fix the first two. There’s no point trying to fix the third—in fact, forcing a change could ruin a good rule.

This brings us to the easiest mistake to make: judging the decision by the outcome. A profit doesn’t necessarily mean it was a good decision, and a loss doesn’t necessarily mean it was a bad one. If your rules said to stop out and the price then recovered, that “loss” was actually the result of correct execution. If you chased a price higher on a hunch and made a profit, that “win” was actually a bad decision that got lucky. If you only look at the outcome, you’ll learn the wrong lessons—you’ll learn to chase highs and stubbornly hold on, because sometimes those things really do pay off.

To make this concrete, suppose you follow the same set of rules diligently for 20 trades: you win 9 and lose 11, but end up slightly ahead overall. If you focus only on the 11 losing trades, it’s easy to conclude, “These rules don’t work,” and throw them out. But if you include the 9 winning trades, your overall result is positive, and the conclusion is exactly the opposite. That’s why the fourth step is to build up a large enough sample: after 20 or 30 trades, look at your win rate, win-loss ratio, and overall results. The outcome of a single trade can’t tell you whether a method is good. In the ups and downs of one or two trades, luck plays a much bigger role than the method.

As for whether to review a fixed number of trades or a fixed time period, people do it differently. Some prefer to wait until they’ve completed 30 trades; others review everything at the end of each month. Both approaches are common. The key is not to change your rules halfway through just because of one trade.

The real output of a review isn’t a list of profits and losses, but a takeaway you can carry into your next trade: which part of your reasoning needs to change, and which action you need to watch.

📖 This course updates with one lesson each day, for a total of 42 lessons. You can find the full lesson list in the pinned course index post.

⏭ Next lesson: Lesson 32 · What Are Open Contracts?

⚠️ Any examples in this course are for illustrative purposes only and do not constitute investment advice.

Next time you have a question about “how to review trades effectively,” you’ll know where to start looking for the answer.

💬 Share your thoughts in the comments—I read them all.