Tracking actual performance vs perfect performance
If im not mistaken Mark Douglas talks about the psychological gap in his book Trading in the zone. (might be another book,...not 100% sure). Basically it's the difference between where your results (P&L) should be if you traded perfectly vs where it actually is as a result of all the mistakes, psychological pitfalls etc that we encounter. Put another way, how well do we follow our plan.
I've started tracking this over the last few weeks. This kind of analysis wont work for everyone, especially if you are highly discretionary in your trading. It will however work if you trade a mechanical system. Or if like in my case, I layout a plan pre-market which defines exactly where and how I will trade if the market reaches certain areas. I am therefore able to look back at the end of the day and record my actual performance vs perfect performance.
Next, I plot two equity curves. My actual performance vs perfect performance. The difference between the two is the 'psychological gap' as Mark Douglas calls it. The goal would be to have this area as small as possible (in a perfect world).
Another thing that i've added is that each time there is a difference between my actual vs perfect, I highlight that area in red. The goal is to have no red zones,...which would mean that I am trading my plan perfectly every day. The more red zones, the more im breaking my rules.
As you can see, i've been breaking my rules a lot over the last few days and it has cost me significantly! Not good!
I've created the below plot in python but im sure something similar could be created in excel. I've only started tracking this recently, but over time I think this is going to be really valuable.