Evaluating your trading
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  1. #1
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    Evaluating your trading

    Hi everyone!

    Question that every trader asks himself from time to time can sound like this – «Is my trading good»? In other words, is it robust, does it have the edge, will it be profitable in a long run?

    Some naïve beginner traders say – «it’s very simple, if you earn money, your trading is good, if you lose money, your trading is bad». But it’s not that easy in a world of real trading – good trading does not necessarily correlate with short-term profits, bad trading does not bring profits in short-term perspective.
    Can you tell me – is this trading good or not if I show you distribution of profits/losses in picture below?

    distr.jpg

    Of course, you may try to analyze this account statement and notice that 906 USD loss was accompanied by increased lot size, also you may notice series of profits (436, 703 and 575 USD), but you know what?

    We never know whether this trading is good or not if we don’t know whether these series of profits was a result of following trading plan or veering from it?
    So, here we come to basic principle of trading – short-term results don’t matter too much, they can be result of luck. Think about it – best trading systems are not providing profit all the time, worst trading systems are not providing losses always.

    Ok, but what if you don’t have rigid trading rules for entering and exiting positions? It’s reality for discretionary traders who use their judgement for making trading decisions.

    Is it really impossible to evaluate your trading using your profits/losses distribution?

    To answer this question, let’s divide trading styles on 2 parts:

    1. Trend-following trading approach:

    In this trading approach, trader expects to have small frequency of winning trades, but his profits are much greater than average loss. For example, it’s ok for trader to have 6-7 or more consecutive losses, then to cover it with 2 trades. His equity curve will look like shown below:

    lossesgainstrending.png

    You see, that in this case trader has relatively small number of winning trades (maybe less than 30%), but he successfully covers his losses with 1-2 «home runs» (big swings). You see, in this trading style it’s not recommended to evaluate trading by short-term profit and we need more time to make conclusion – is this trading approach robust or not.

    2. Short-term trading:

    By short-term trading, I assume that one can either day trade or hold position overnight but still have small duration of average trade (1-2 days). Of course, the less duration of trade we have, the less is our average profit per trade. Yet In this example, we can expect to have better frequency of winning trades. And correlation between good trading and immediate results is much better for short-term trading rather than for trend-following trading or other long term trading styles.

    Equity curve in this case will look like this:

    short-term.png

    You see, here we can have about 50/50 distribution – in every second trade we can get profit or at least achieve breakeven point. Why not 70/30 or 80/20?
    That’s a dream of every trader – to have 80% of winning trades and also keep profit/loss ratio more than 2/1 (having average profit greater than average loss).

    But there are no hidden hacks and shortcuts in trading – if we improve our frequency (quantity of winning trades), we lose magnitude (size of our profit becomes smaller). Some traders are proud that they have almost no losses or 95% of winning trades, but size of their possible loss can destroy entire account. Market is hardly predictable in short-term perspective. I personally don’t think that we should chase for high frequency of winning trades. If I will be able to get 50% of winning trades and keep 3/1 profit/loss ratio, I would be in hog heaven.

    In short-term trading approach it's much easier to evaluate your trading by short-term results - the better you trade, the more winning trades you will have and vice versa. That's why personally, I prefer short-term trading approach, because I can keep myself on track and quickly reconginize that my trading has become defensive, too aggressive e t.c.

    Starting from September 2013, my own track record of results is shown below (Every week I put down result in pips in special Excel file):

    mytrading.png

    You see, my profitable weeks are almost equal to losing ones - I don't have "home runs" except one trade on XAGUSD (Silver). But frequency of winning weeks (I had 2 times greater number of winning vs losing weeks) allows me to survive in the long run (and to get profit) without "killing trades". And, what is even more valuable, I can quickly recongnize when I'm trading poorly and correct my trading behavior.

    Good luck!

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    Last edited by Value trader; 04-21-2014 at 08:13 AM.

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    as my simple opinions, as long as we can make profit is bigger than losing, so we are in profit, and it is good, but, we need to pay attention to see the bigger losing per trades we have made, and also the bigger profit we can make per trade, and if the losing is bigger, i guess we need to be careful for trading, because i see that there is a problem to analyze the market or also to protect our balance,

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    Reading this carefully, it is talking about the money management rules that is lined to proper skills of trader, and in this , if you have better winning percentages system t trading, it means that you will earn better and faster in this system even if you have the same rate(numbering) of losing and winning in the market.

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    Quote Originally Posted by cozard007 View Post
    Reading this carefully, it is talking about the money management rules that is lined to proper skills of trader, and in this , if you have better winning percentages system t trading, it means that you will earn better and faster in this system even if you have the same rate(numbering) of losing and winning in the market.
    have money management in trading we also must have the ability to trade using the market analysis as well as we have a good analysis in this trade we will also have to learn to analyze because after a good trade with the analysis in this business is the part that should be we do if we want to succeed in this trade gain skills that can earn money in this trade

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    Rookie kagho's Avatar
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    this is invaluable knowledge yes we have to ensure that we have more wins than losses and even when we are having this more wins we have to also ensure that the losses are not as big as the winners so as to avoid them diluting the winns we have already made

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    I think we need to do the evaluating of our trading. We have to devepol our personal trading strategy. Because, everyone of us like good trader wants to have the best trading strategy ever. For receiving the best from our researching work we need to evaluate first our precedent job wich we have done before. And the our next work we will see every time better and better. This is development of our trading strategy or our work like trading. We need to look for our last work in the past. In this way we will see if we are going in the right way. We will se the our job every time better.

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    Well from my personal experience I have had times when my strategy would give me profits on 5-10 straight entries and one might think he has found the holy grail but as time goes on the same strategy would hit stop loss on 6 straight entries, at that time I might think that the market is one big joke or my strategy is useless, but doing a further research I discovered that my profit entries are still more than my losese entries ,my main problem was my lot size, because as my capital increases it would be normal to increase my lot size meaning that my returns or losses would be more, so in other words what my strategy lacks was proper risk management and being able to protect some of my intial gains to ensure that my earning cure was on a positive side even though there might be some swings to the down side, I have also learnt that in forex you shouldn't expect much especially when you have little funds or capital.

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    Registered user Dheeraj123's Avatar
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    Thanks for this information I think we should try to check with our trading result daily and should make daily records that will be better for future and one thing you mentioned that market trend trading is best for traders I think that's true market trend knowledge is very important in forex

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    Quote Originally Posted by COMANG View Post
    have money management in trading we also must have the ability to trade using the market analysis as well as we have a good analysis in this trade we will also have to learn to analyze because after a good trade with the analysis in this business is the part that should be we do if we want to succeed in this trade gain skills that can earn money in this trade
    you are right,personally to me the most important in this business is following the market trend and using the right money management when trading,even if the entry is wrong as long as the trend is right one can still make more profit and hedge for a while and the still join the trend after it result,this is why i prefer trading the higher time frame because trend there always last long

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  10. #10
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    Forex trading and profit is depend on our skill and knowledge though Forex is difficult business.we can earn lot of money after gain trading experience.Forex is not easy business so we should hard work if we want to become successful in Forex trading.Forex can change our life style so we need learn Forex and more more practice .Forex is difficult business so we can not earn money easily with out gain skill.

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