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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. #2011
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    People that are in the business of evaluation of trades have a higher propensity to become professional Forex traders, this is an habitat thing for those that have grown in this market, it is when they are carrying out these evaluation that many things that they missed during the trades will begin to show up, in was checking my charts last night to see my trades previously, I saw something that I did not pay attention to previously.

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  3. #2012
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    Quote Originally Posted by Leonvic View Post
    People that are in the business of evaluation of trades have a higher propensity to become professional Forex traders, this is an habitat thing for those that have grown in this market, it is when they are carrying out these evaluation that many things that they missed during the trades will begin to show up, in was checking my charts last night to see my trades previously, I saw something that I did not pay attention to previously.
    Traders who can manage their trading performance well and arrange their mistakes to be their best teacher, they can achieve better result in the end after they use their time to learn and finish their evaluation with their whole trading. Patience of learning become trader's best friend to help them understand many things in time when we're worthy enough to accept the knowledge.

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  4. #2013
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    Quote Originally Posted by Silhouette View Post
    Traders who can manage their trading performance well and arrange their mistakes to be their best teacher, they can achieve better result in the end after they use their time to learn and finish their evaluation with their whole trading. Patience of learning become trader's best friend to help them understand many things in time when we're worthy enough to accept the knowledge.
    evaluation process is necessary because if we do not evaluate we can lose more, if we evaluate we can understand now what to do and how to do, so in this line our success can be because when we evaluate our system we make sure we avoid mistakes and add all good points so overall we make our good strong strategy and without evaluation this is not possible to make a good strategy

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  5. #2014
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    For sure, the trader that can make good evaluation will get the best of trading results which will really make them become profitable trader, making evaluation is appropriate, because it is needed so as to make the trader get to become profitable. You being the kind of trader that makes evaluations helps you take good correction and know what works for you the best.

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  6. #2015
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    Quote Originally Posted by Makaveli View Post
    For sure, the trader that can make good evaluation will get the best of trading results which will really make them become profitable trader, making evaluation is appropriate, because it is needed so as to make the trader get to become profitable. You being the kind of trader that makes evaluations helps you take good correction and know what works for you the best.
    you are right when we evaluate our strategy we learn trade we learn from mistakes but people do not evaluate their system they do not blame their system or strategy, they think their system is perfect but market is not behaving right so they blame just market not system. we can do well trade if we blame self as well it can give us more reasons to place order and learn, it can teach us many good things which can save us from loss

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  7. #2016
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    Quote Originally Posted by altafch View Post
    you are right when we evaluate our strategy we learn trade we learn from mistakes but people do not evaluate their system they do not blame their system or strategy, they think their system is perfect but market is not behaving right so they blame just market not system. we can do well trade if we blame self as well it can give us more reasons to place order and learn, it can teach us many good things which can save us from loss
    Mistakes comes out in the end of our trade and we will realize that our previous analysis was wrong. This does not indicate that we were doing things wrong from the beginning, it is just common mistake of the business and everybody does the same thing couple times. This should not limit us from doing the best we can do and do not make a single losing trade to ruin our excellent performance. That is the way of how evaluation should works.

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  8. #2017
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    A forex trader must reach a point where he evaluates his trading and see how things really are. It may be hard to tell whether you are making headway or not without proper evaluation. There is no way you can discover the areas that need proper attentions in your trading process without careful and proper evaluation . There are so many ways you can evaluate your trading, and for me , I keep trade journals and then find times to go over them from time to time .

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  9. #2018
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    layigold, evaluation is important step of trading because if we have evaluation process we can learn trade properly, actually in trading when we evaluate we learn trade we learn how to earn and how to overcome the issue, because most of time we repeat mistakes, so whenever we have evaluate system we learn from every single order in case of profit and loss, so make sure you do properly and learn it first then we can earn good

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  10. #2019
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    Quote Originally Posted by naeem555 View Post
    layigold, evaluation is important step of trading because if we have evaluation process we can learn trade properly, actually in trading when we evaluate we learn trade we learn how to earn and how to overcome the issue, because most of time we repeat mistakes, so whenever we have evaluate system we learn from every single order in case of profit and loss, so make sure you do properly and learn it first then we can earn good
    you are also right when we learn from mistakes we increase our experience we increase our trading capability, so in trading try to evaluate every loss, it tell you one bad thing in trading which you need to avoid in future but if you will use same mistake then you can not earn, in fact you can lose just, so avoid trading without proper learning on demo account, demo is the only way to increase experience

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  11. #2020
    Trader layigold's Avatar
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    It is complacency that makes some traders think proper evaluation of trading is not necessary and such traders will find it difficult to make headway because there is no way to know your areas of weakness that require to be improved upon . Without proper evaluation and assessment , one is not different from a blind traders who always goes about the places where situation and circumstances lead him . It is proper evaluation that helps a trader determine his current place and position in trading

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