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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?

    Attachment 10031

    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:

    Attachment 10032

    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:

    Attachment 10033

    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):

    Attachment 10034

    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 07:13 AM.

  2. #1981
    Registered user Toyen's Avatar
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    Quote Originally Posted by sekiryutei View Post
    Sometimes many traders are not trying to evaluate their own trading fairly. Actually if they did it, then they will find their own trading filled with a lot of holes they need to cover. This is why a lot of traders are not growing. They try to stay in their comfort zone which might not only bring them a lot of loss in money but loss in time as well.
    It is not an evaluation in any form when the trader did not do it correctly, we have to do evaluation correctly or forget to evaluate at all. When traders are doing their trading without evaluation, there is no way the trader will grow, that trader will only be moving in one spot of his trading career. Evaluation has helped me personally, i had to force myself on evaluation when i discovered i was not growing in my trading.

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  3. #1982
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    Evaluation of our trades is analysis what we do well and what we do wrong. Such analysis will help to determine our strong sides and find our weak places where we do mistakes. If we know where we are strong and where we are weak so we will do less mistakes and improve our trading and results. Self analysis is also learning process traders should do.

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  4. #1983
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    sniper007, when we evaluate there can be two possibilities: like sometime we can lose because of unexpected move so do not think its because of your mistake but limit your loss and if you are not limiting then it can be your mistake, next thing is you lose because of some your bad analysis or management so in that situation you need to learn, make sure you learn properly and then you can upgrade strategy here for accurate earning

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  5. #1984
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    Evaluating our own worth in here will be simple and I think that we need to learn what we can properly do in here at first and after knowing which thing is proper to be done then we can decide what we could possibly do next. Keep in mind that it is not good to be a straightforward or a blind trader, traders have to give rooms to evaluation too, this is the way that will make sure the trader is doing better.

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    There is need for periodical evaluation of your trading performance to see how well things stand with you . This will help you know the exact area or aspect of trading that needs to be improved upon. It is not every time the loss comes from the end of a trader so, proper evaluation would make you see things clearly and eventually come out a better trader.

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  7. #1986
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    Quote Originally Posted by layigold View Post
    There is need for periodical evaluation of your trading performance to see how well things stand with you . This will help you know the exact area or aspect of trading that needs to be improved upon. It is not every time the loss comes from the end of a trader so, proper evaluation would make you see things clearly and eventually come out a better trader.
    but we should make some rules for this when we evaluate after some specific period then we can guess where we need to make changes. so keep in mind your evaluation process should be good and should be base on some specific rules and time, it can increase experience and can give you good tips also. otherwise learning can be hard for a trader

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  8. #1987
    Registered user sniper007's Avatar
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    Evaluation is simply what we need most of the times when we are taking on losses, I think we need to know how to make good evaluation so that we can avoid the same mistakes and most of all, get to know the kind of approach that we should always make use of when trading, that is what evaluation will help us achieve as we trade the market.

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  9. #1988
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    Quote Originally Posted by sniper007 View Post
    Evaluation is simply what we need most of the times when we are taking on losses, I think we need to know how to make good evaluation so that we can avoid the same mistakes and most of all, get to know the kind of approach that we should always make use of when trading, that is what evaluation will help us achieve as we trade the market.
    evaluation not means we evaluate good or bad evaluation process is simple and same for all. in order we have some factors like lot size, strategy, time frame and many other we need to check where changes can made our strategy more good. so i think every trader check these factors just then they learn from these and can earn good with a good strategy. if we have proper way we can earn easily

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  10. #1989
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    The traders that does the evaluation gets to become profitable and then they get to trade successfully. I have been able to have learned so many things and then been able to have corrected my mistakes through the use of the evaluations, because I did looked at the way I have been trading and then seen that I have been making some bad mistakes, so, I also learned to keep doing the good things which I have done that has made me win.

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  11. #1990
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    You can only get to become profitable, in as much as you have developed a simple good trading strategy for it. Then in the process of having the trading strategy work, that is when the trader should be able to make evaluation and then get to learn to know what works for them and then what that doesn't work, when you know about those things. I think the performance with the indicator will increase.

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