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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.

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    Registered user Sascha's Avatar
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    Quote Originally Posted by layigold View Post
    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
    good point sir, hopefully traders are able to make this kind of explanation about how we're supposed to do in this business to evaluate ourself with our own strategy. i finally got this kind of understanding after several months from my first time joining this business as beginners. later after struggling hard with my beginning times, i was starting to understand bit by bit about market and then it helped me to evaluate my own trading.

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    Evaluation is every thing in our dealings, because if you ain't doing that, then you gonna keep on making the same mistakes over and over again. But when you have learned and known the reason why you lost or won your past trades, it wil help you put so much improvement and then help you become the kind of trader that gets to improve and become profitable.

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    Quote Originally Posted by Real View Post
    Evaluation is every thing in our dealings, because if you ain't doing that, then you gonna keep on making the same mistakes over and over again. But when you have learned and known the reason why you lost or won your past trades, it wil help you put so much improvement and then help you become the kind of trader that gets to improve and become profitable.
    this is right evaluation system is necessary because when we evaluate our system our trade we can earn we can understand good things, but if we do not evaluate our system and uses directly on demo then we can lose just, so make sure you evaluate system on demo and for this use any proper strategies which seems good to you, in startup use scalping its right way to earn good

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    Quote Originally Posted by altafch View Post
    this is right evaluation system is necessary because when we evaluate our system our trade we can earn we can understand good things, but if we do not evaluate our system and uses directly on demo then we can lose just, so make sure you evaluate system on demo and for this use any proper strategies which seems good to you, in startup use scalping its right way to earn good
    Many times we lack patience to work on demo before real, but it is essential and using a strategy on demo first gives us the knowledge and confidence to use it in real trading. using a strategy for a long period of time makes us more experienced user of that strategy and use it more effectively to tap high probability trades. The complete concept of trading to me is to follow our strategy with the needed rules of risk management and plan.

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  6. #2025
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    Quote Originally Posted by Abhishekwala View Post
    Many times we lack patience to work on demo before real, but it is essential and using a strategy on demo first gives us the knowledge and confidence to use it in real trading. using a strategy for a long period of time makes us more experienced user of that strategy and use it more effectively to tap high probability trades. The complete concept of trading to me is to follow our strategy with the needed rules of risk management and plan.
    this is true when we take any strategy for long period it make us good it make us able to understand market more clearly, so i think we should do trade more and more in case of some practice, if we do practice process completely in right way our earning process will be good, so do trade and do on base of some experience, without experience no one can survive this is reality

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  7. #2026
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    Making evaluation is important, you get to see the way you have been trading and then you get to make adequate evaluation whereas making you many more steps ahead and you getting to know what that has caused you to loss money and then having to correct it. Therefore, it is a good thing to be able to make stronger evaluation each and every month so as we can develop with it.

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    Registered user Azis Muslim's Avatar
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    Quote Originally Posted by Makaveli View Post
    Making evaluation is important, you get to see the way you have been trading and then you get to make adequate evaluation whereas making you many more steps ahead and you getting to know what that has caused you to loss money and then having to correct it. Therefore, it is a good thing to be able to make stronger evaluation each and every month so as we can develop with it.
    Whenever we are trading and we know market is going to set its move to our stop loss, we got 2 options to do. One is to watch through until market hits our stop loss and two is to close our trades immediately. During this time, we can evaluate our previous analysis while making another new evaluation about our solution to recover the mistakes and reveal what is market true intention that actually against our previous analysis.

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    Quote Originally Posted by Azis Muslim View Post
    Whenever we are trading and we know market is going to set its move to our stop loss, we got 2 options to do. One is to watch through until market hits our stop loss and two is to close our trades immediately. During this time, we can evaluate our previous analysis while making another new evaluation about our solution to recover the mistakes and reveal what is market true intention that actually against our previous analysis.
    You know that of watching through is not going to be possible, giving the fact that there is no way a sane person will sit down at the front of their computer making analysis and watching the trades all day long. I think the trader should just learn to make use of stoploss in the best possible way, so as to have a more stronger means of protecting their account.

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  10. #2029
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    Quote Originally Posted by Darkhorse View Post
    You know that of watching through is not going to be possible, giving the fact that there is no way a sane person will sit down at the front of their computer making analysis and watching the trades all day long. I think the trader should just learn to make use of stoploss in the best possible way, so as to have a more stronger means of protecting their account.
    Evaluation is studying the trades and then finding out the reasons for not getting good profits or for getting stop outs. Evaluation helps us to know our trading and what we are deriving out of it, so then we can also know how to perform better. Through evaluation we can learn to do trade well by having calm and emotional free mind.

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  11. #2030
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    Evaluation of past trades is very good habbit. It lets us to do good analysis of why we have opened orders and why we have closed the orders. It is useful because forex market situations repeat and the smilar situation will be in some time later and trader will know what to do in this situation. It is very good learning process.

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