A Trader’s Examination of Conscience

Occasionally, we traders need to reflect on how we are doing, giving ourselves an honest and thorough appraisal. This can be a tough experience but it is certainly necessary, as I can guarantee that you won’t get better without it. Below, we are going to go through one such exercise, borrowed from Roman Catholicism.

Too often, we can delude ourselves in numerous ways about how we are trading. We can stop opening account statements; we can blame our poor returns on someone else; or our good returns can mask problems, like taking too much risk. Without such an examination, we run the real risk of going off course in our trading and not identifying errors and areas for improvement, let alone fixing them.

How do we undertake such an effective self-appraisal, in order to be truly open and forthright with ourselves? The easiest way to borrow is from what already exists and modify it to suit our needs. In many faith traditions, there is the concept of conscience, which is the “inner voice” that guides one to do right and avoid wrong. By examining our conscience, we can take an inventory of what we are doing wrong or right in life. For our purpose, we will just examine various aspects of trading.

What is an examination of conscience?

In the Catholic faith, an examination of conscience is what people do to prepare themselves to confess their sins and seek forgiveness. Typically, you go through certain spheres of your life or according to the Ten Commandments and the areas that you’re struggling in and ask some good, tough questions of yourself to figure out how you’re really doing. For example, you could go and ask yourself a series of questions about each commandment, so as to figure out where you are weakest and need improvement. A great sample examination of conscience comes from beginningcathlic.com.

What would an examination of conscience look like for traders? It would cover some of the major topics that traders know about, like preparation and risk management. Ideally, it would also cover topics that impact on one’s trading, like whether or not you are trading with money that you can afford to lose. Thus, the overall list will be pretty comprehensive, because that is the idea—it is a thorough look at the many trading-related aspects of your life.

With no further ado, here is an examination of conscience which we can use to review our trading, identify weak spots and hopefully to start the process of correcting them. Read these questions aloud to yourself and reflect on the answer to each one of them.

Goals and Objectives

–          Do I have clearly defined goals and objectives for my trading?

  • Trading without goals and objectives is like driving without a destination in mind. You may end up somewhere, but it likely won’t be where you want to go.  

–          If so, are my goals realistic?

  • Expecting to make 1000% per year is a goal, but it is not realistic.

–          Is the amount of risk that I will take compatible with the rest of my life?

–          Am I setting profit-based goals and process-based goals?

  • While everyone wants to be profitable, process goals are just important as they sharpen your game and determine how you will reach your objectives.


–          Do  I have a well-stated investment process and methodology to guide my trading decisions?

–          Is my trading process supported by substantial amounts of research, back-testing and experience? Am I sure that I have a demonstrable edge?

  • Traders need a clear, verifiable edge in order to be sure that they will make money; otherwise, they are just shooting in the dark

–          Do I get caught up in the financial results of any individual trade?

–          Have I been focused on making One Good Trade after another?

Risk Management

–          Do I have a pre-defined methodology for exiting trades, controlling risk and preserving capital?

  • Risk management is what separates the pros from the amateurs. By managing risk properly, the best traders avoid crippling drawdowns and always stay in the game

–          Have I put on positions where my risk was too great?

–          Have I managed the risk properly on my open positions?

–          Do I have stop loss points on my entire portfolio?

–          Have I been reviewing and revising my risk parameters?

  • This is often overlooked. If you are experiencing bigger volatility in your returns than you had originally anticipated, take down your risk. If you just sold your business and are adding to your trading account, you can take up your size gradually.


–          Have I been devoting the necessary preparation time before trading?

–          Have I been sticking to my process and rules when trading?

–          Have I been following my risk management discipline?

  • Properly implementing risk management is the one of the most psychologically difficult things to do—it can be a challenge to close a position at a loss, as you are admitting that you were wrong and you are eliminating any possibility of it returning to a profit.  

–           Am I aware of the circumstances and triggers when I lose my discipline?

  • If there are certain triggers for your letting your discipline slip, figure out what they are and do your best to avoid them or change your reaction. For instance, if trading at home leads to distractions and in turn a lack of focus, then either don’t trade at home or get rid of the distractions.  

–          Do I struggle with discipline in other areas of my life, like gambling, drinking, exercise, eating right? If so, are these struggles affecting my trading?



–          Am I getting sufficient relaxation and rest to trade well?

–          Am I trading or carrying risk around stressful and major life events like the deaths of close loved ones?

  • While we may hope that we can carry on trading around stressful life events, our emotional states become fragile and our decision-making abilities deteriorate. It’s a  much better idea to take off all risk and watch from the sidelines

–          Am I professional in my approach to trading? Or am I treating it as a hobby, an escape, a source of excitement?

  • Trading demands intense preparation, consistent effort and discipline in order to be profitable. You must treat it with the same seriousness as any other profession.

–          Is trading compatible with how I want to live the rest of my life?


–          What resolutions will I draw from this exercise? Which areas of my trading do I want to improve?


While this list is not an exhaustive one, hopefully it serves as a good start to looking at your own trading and what you may want to improve. While introspection like this can be unpleasant, the idea is that we come out stronger as a result of the exercise. The good thing about being in the markets is that there is always room for more study and improvement.

Feel free to add this traders’ examination of conscience to your own periodic review. If you have any suggestions for new questions or topics, please let me know.







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