Thursday, September 10, 2009

An honest PE is a good thing

My wife is a manager at an insurance company. Once a year she has to fill out a Performance Evaluation (PE) for each of her employees. PE's are serious business. A PE form is many pages in length and includes multiple choice selections as well as many written answers. Getting a good PE is the key for an employee to qualify for a raise, be seen in a positive light for advancement potential, or on the flip-side mark them as "replaceable", or make them a candidate for disciplinary watch. A lot of time has to go into completing these because of the very serious ramifications. The well-being of an employees' family, and all their hopes and dreams, may be at stake. If an employee is involved in, or causes a serious incident with that company, one of the first things the lawyers will say is, "show me the PE's". And you thought those college placement tests you took in high school were serious stuff? Welcome to the real world.

As a trader, how about you? Do you have someone completing a PE on you once a year? One of the advantages of trading is you can be your own boss. One of the disadvantages of trading is you get to be your own boss. Who is it that you have to answer to? Your family? They may desperately need for you to do well. What happens when you goof off, or make excuses for not following the plan? No doubt many traders fail because they make lousy bosses of themselves. But it's something that MUST be done. Sure, we all police ourselves to a degree but usually in a much more informal way. But if we are really serious about long term success should we require a more thorough evaluation of our performance? Do you treat your trading as a real business…with lifelong ramifications?

The only person who can probably do the evaluation is yourself, because only you know well enough what it is you need to do (at least you'd better hope you know). But it may also help to have an experienced fellow trader question you as well ("hold you to the iron" so to speak). It doesn't matter if you are just beginning as a trader or been at it for 10 years. The type of work and expectations at each level will vary. You need to be evaluated based on the level you are at. But you'd better take it very, very seriously. You have to step outside your own body and look down on yourself "as an employee of the trading system you use" and ask some tough questions. The ramifications of your honest answers may be huge. Cheat at it and you only cheat yourself....or your family. What are some areas for this evaluation? Here are some, but I bet you can think of more, based on your own situation. I'd suggest a PE every 6 months.

1) Does the employee have a set daily "morning-to-night" routine that he/she must follow? Y/N Explain what the steps are. How many times in the last 6 months has the employee failed to follow this routine? What reasons/excuses is the employee offering for those times he/she fails? Are they legitimate?

2) Related to #1...Is the employee following a specific pre-market preparation routine in order to prepare for the next trading day? Y/N If yes, what are those steps? Is the employee capable of writing down at least 2 new things he/she has learned from this prep work since the last PE?

3) Related to #1...Does the employee follow a daily or weekly homework routine where he/she works on the key principles of the plan? Y/N If yes, is the employee doing this homework at a specified time, or is he/she "winging it"?

4) Is the employee making themselves available to the market on all trading days? What days in the past 6 months has the employee failed to show up for work? What were the reasons given? Were they legitimate reasons?

5) Does the employee thoroughly understand the “how’s and why’s” of the trading plan being implemented? At least once on the last 3 months has he/she written out the trading plan on paper, from memory? How thorough was the explanation?

6) What is the employee doing to work on his/her trading psychology? List three things. What books on this subject has the employee read in the last 6 months? Has the employee submitted a credible book review complete with detailed notes?

7) Based on an after-the-fact review of the days market, what percentage of the qualifying trade opportunities is the employee taking? What reasons is the employee giving for not taking some of them? Are those valid reasons? What steps is the employee taking to improve in this area?

8) Is the employee getting plenty of rest while away from the market? Is he/she eating right so that he/she is mentally alert and not mentally lazy?

9) How would you describe the employees attitude/demeanor during the day? Does he/she seem stressed/nervous? Relaxed? If stressed, what actions do you propose employee take to work on this?

10) What kind of record keeping is the employee doing? Has he/she submitted a notebook cataloging these records? Does it appear complete or are there many missing days?

11) Has the employee given a written explanation of the conclusions reached by his/her record keeping? Or does the employee "just go through the motions" and rarely try to understand the implications of his record keeping?

12) Is the employee practicing correct trade management per the plan? What percentage of trades are reaching the minimum target?

Based on a thorough review of the above, does the employee merit keeping his/her job for another 6 months? Does the employees' equity curve show that he/she is grasping the essence of the plan? Name the one area where the employee needs the most improvement?

Date:____________ PE conducted by: ___________________

You get the idea. It’s clear that with the success/failure rate associated with this business we have all heard a hundred times, if you plan on being one of the long –term consistent winners you have to do what the rest aren’t willing to do.


  1. Very good stuff.

    Tis funny when you post something like this, something that requires some work, you don't get much response.

    If you post charts of trades the whole world is interested.

    But what do those charts tell anyone about their own trading?


  2. Thanks Solfest. I just saw mention of your impressive trading skills over at JE's blog today. Yes, you are right. It's all about entries, entries, entries...and then maybe exits, isn't it? Ahhh, but so much has to go on behind the scenes for those entries and exits to come to fruition (or at least make a person look like he knows what he's doing). Have a great weekend.


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