How do you know if you are trading well? One way obviously is to monitor the balance of your trading account, but how else can you keep track of your performance? How do you know that you can't do better and make better decisions? It is imperative that you monitor your performance and keep track of how your trading is going.

When was the last time you reviewed an old trade? What were your last three poor trading decisions and what impact did they have? If you can answer these questions, you may already have a process of reviewing past performance even if it is subconsciously. A methodical process by where you thoroughly review your past trades and even positions you considered but did not enter will allow you to learn from your mistakes, but equally, reinforce the good decisions you did make and the positive consequences those decisions had.

It is well accepted that this is a characteristic of the best traders in the world. They have a passion for their trading and will often and periodically review all of the trades that they have conducted including all the profitable and losing trades, and learn from them. At the end of the trading day or week, that does not mean for them that they stop thinking about their trading. They will always be interested in learning new ideas and looking to build upon their trading and information systems they already have in place.

Probability is very relevant to trading, and one of the main things I look for when entering trades for example, is to have a high probability of having a profitable trade. In other words, because all of my conditions have been met, I enter the trade with confidence knowing there is a fair chance of the trade resulting in a profit. As we know, there are never any certainties.

Probability has its place in money management too, specifically position sizing.

Let's set the scene. Perhaps we have a trading method that results in half of our trades being profits and the other half being losses or close to breakeven. We start with $10000 and after a few losses, our trading capital has lessened to $9400. (3 x $200 losses in successive trades).

Now, we begin to think that we are behind and need to make up the deficit so we can move forward and begin to make money. As each losing trade passes however, the money we need to make to get back to breakeven (back to the initial $10000) increases and we have less and less capital to do it with, which places pressure on us to perform.

The trap we can fall into is to increase our trade size on the back of successive losses. In the back of our mind are desperation, and the thought that we need to have a massive winner trade soon to get back on track.

Here is where probability enters the scene. As each losing trade passes, we can easily think that the chance of the next trade being a profit increases significantly. It is too easy to think this and with this in the back of our mind, we can be tempted to increase our trade size to get back to break even quickly because the chance of the next trade being another loss is not great.

One of the things that separates successful traders from the majority of market participants is that they have a detailed plan that guides them when to close trades. For them, this is essential. It is fair to say that when a lot of traders buy shares they have little idea of under what conditions they would consider selling. It would also be fair to say that a fair percentage of market participants routinely adopt a 'buy and hold' approach.

Whilst trading routinely involves decision making, there are no more important decisions you have to make than when to sell shares. Many traders often overlook this part of trading or underestimate how important that it is.

Importantly, the outcome of every trade is dependent on the exit. If you enter in a timely manner and then exit poorly, the trade could very easily be a loss. If your entry happens to be poor but your exit is good, you might actually still salvage a profit, or at the worst, minimise a loss. The exits, and not the entries, determine the outcome of your trades.

Any form of backtesting will illustrate this point. You can take an entry signal but combine it with different exit strategies. You will quickly discover that you can drastically affect the overall results with only minor adjustments to the exit strategy.