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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. #1991
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    Evaluation is for our own good so that we can identify with the market and know what which has made us loss money and that which has made us more money. From my basic experience and learning. I have got to know that the making of evaluation such as the use of the past experience to learn more better about how to trade in the future is important. I also take note of my mistakes and be careful about them next time.

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  3. #1992
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    Quote Originally Posted by Striker$ View Post
    Traders making evaluation tends to give the trader the best of trading ideas and how they can correct and improve. You know, when you ignore your past performance, it is either you start performing bad or you start losing your money in the market. Therefore it is a good thing that we all get to learn and know how to make those good corrections on how to make close to perfection trading decisions.
    Evaluation is a method to trade forex field in an advanced format, the forex traders who are doing evaluation are the traders who wants to learn more regardless of whether or not they are already trading the real account. Evaluation is a further knowledge into knowing how to trade with more experience, that is why the traders who are looking for evaluation will always have a forex journal to make their advanced learning easier.

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  4. #1993
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    Quote Originally Posted by ola4real View Post
    Evaluation is a method to trade forex field in an advanced format, the forex traders who are doing evaluation are the traders who wants to learn more regardless of whether or not they are already trading the real account. Evaluation is a further knowledge into knowing how to trade with more experience, that is why the traders who are looking for evaluation will always have a forex journal to make their advanced learning easier.
    evaluation process is not simple as we think, some time we lose by chance or market can move unexpectedly so if we change strategy its wrong, so we should keep in mind we can made changes if our way is good, if we are doing perfectly and we are getting loss, then from every order we can earn some good experience, we can earn or lose but we can gain experience from it

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  5. #1994
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    Making evaluation is one of the best way to improve in your trades, those who made evaluation and know how best they can handle their mistakes has really gotten to become better with time. Making evaluation isn't simple thing at all. I think the trader will have to keep on learning and being consistent about it. Because the evaluation helps us know the mistakes we have done and then we make correction in that regards.

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  6. #1995
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    Quote Originally Posted by Striker$ View Post
    Making evaluation is one of the best way to improve in your trades, those who made evaluation and know how best they can handle their mistakes has really gotten to become better with time. Making evaluation isn't simple thing at all. I think the trader will have to keep on learning and being consistent about it. Because the evaluation helps us know the mistakes we have done and then we make correction in that regards.
    every traders do this step because in evaluation we learn from our loss so whenever we lose here we try to understand whyi got loss, when i was in big loss i got one big reasons i started to over trade so i just try to control it and limit my trading, because of gbp brexit news also i am very slowly trading because gbp is risky in now a days and moving huge up and down , so its better to safe trading instead of losing big because of news

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  7. #1996
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    Learning is always needed, because with the learning comes the experience and then the approach by which the trader can become profitable. If you want to become profitable, you should be able to make simple good evaluation and then know what is to be done with your trading strategy. I have learned and followed the experience approach and made evaluation on how I traded and that has really helped me become a good trader.

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  8. #1997
    Trader sniper007's Avatar
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    Those who wants to trade the market and become profitable should take time to make good evaluations and then see how they are trading and also see what they need to have and then also how they will be needing to make more and more improvement. We can become profitable and successful, but then again we have to show a lot of commitment and also that means making evaluation so correct our mistakes.

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  9. #1998
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    Making good evaluation is all what we need to become a good consistent trader, as knowing our weakness and then our strength when trading, it adds to how profitable we can be, but when we don't get to know our weakness and then we keep on trading the market the wrong way, it will only get to make us keep on losing to the same reason often.

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  10. #1999
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    I need to emphasize that trades that are evaluated makes us better as time goes on, it is a lack of responsibility that makes traders to overlook there past performance, evaluating is an excellent thing to do, it brings solutions to all the problems we have faced and the ones that will happen, the price of any successful trader comes through their hard work to ensure that when it is time to reap their rewards, they get what they really deserve, trading Forex is not just to pull the trigger always, evaluate and see what you are not doing well.

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  11. #2000
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    Quote Originally Posted by cutiekc View Post
    Making good evaluation is all what we need to become a good consistent trader, as knowing our weakness and then our strength when trading, it adds to how profitable we can be, but when we don't get to know our weakness and then we keep on trading the market the wrong way, it will only get to make us keep on losing to the same reason often.
    We have to evaluate the results we achieve from our strategies or system on a regular basis and that is how we come to know of the right course of action to improve. Those who dont take time for evaluation will not be able to find the reasons for their losses and then their losses grow bigger and bigger. The main function of evaluation is to enhance our trading quality.

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