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 07:13 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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    both profit and loss are the part of the business, forex trading is a business so you should be prepared for the loss, because any thing can happens in business, you cannot stop the loss in business but you can minimize it by working hard, so don't be afraid of losses.

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    Quote Originally Posted by traderjunaid View Post
    both profit and loss are the part of the business, forex trading is a business so you should be prepared for the loss, because any thing can happens in business, you cannot stop the loss in business but you can minimize it by working hard, so don't be afraid of losses.
    Right and correct, man. And I am agree with you. We have losses and we have profits in our personal trading. But we need to evaluate our pesonal trading and we have to make a difference between then losses and the profits. We have to analize our personal trading strategy and we have to eliminate the lossing factors but we need to reenforze the profits factors.

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    Quote Originally Posted by traderjunaid View Post
    both profit and loss are the part of the business, forex trading is a business so you should be prepared for the loss, because any thing can happens in business, you cannot stop the loss in business but you can minimize it by working hard, so don't be afraid of losses.
    Yes, this is right opinion. anything can happen in your account. so we can come out from that situation by making a good trading plan. but it will not be better we do trade blindly and emotionally. When our vision to make lot of money so we should to focuse every point perfectly.

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    Quote Originally Posted by mohabbat View Post
    Yes, this is right opinion. anything can happen in your account. so we can come out from that situation by making a good trading plan. but it will not be better we do trade blindly and emotionally. When our vision to make lot of money so we should to focuse every point perfectly.
    I think when we do our trading with good plan and discipline to follow the rules we can protect our account and grow it over time. I think evaluating ourselves and our trading is the way to become a successful trader. Forex market is the best way to earn profit, and changes the life of a trader completely. But there is a condition if trading is done in proper way and with good understanding.

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    [lang=id]i see that short term trading is relevant for me, i can reduce the risk and make some pips per trades and repeat it again, it is good for me and feel suitable with it, i guess about risk or loses, it depends to the traders's ability , maybe they can make good percentages between loses and winning,[/lang]

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    Quote Originally Posted by samprazaan View Post
    [lang=id]i see that short term trading is relevant for me, i can reduce the risk and make some pips per trades and repeat it again, it is good for me and feel suitable with it, i guess about risk or loses, it depends to the traders's ability , maybe they can make good percentages between loses and winning,[/lang]
    I think short term trading very good system for daily making some dollar. and it is very profitable system. but you can not compare it with your long term trading because long term trading very secure and suitable way for life time income . so in my view both style so good but long term very secure.

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    Quote Originally Posted by mohabbat View Post
    I think short term trading very good system for daily making some dollar. and it is very profitable system. but you can not compare it with your long term trading because long term trading very secure and suitable way for life time income . so in my view both style so good but long term very secure.
    I strongly agree, even some traders prefer to use short-term strategies to meet their profit targets everyday. But it is not easy, which is affected by the market movement daily news, and daily price volatility can create risks for short-term traders or intra-day traders. I think using both strategies, is the right choice. Where long-term strategy would be the replacement if in our short-term strategy has the problem. For example, I got a loss on scalping strategy but I can replace it with profits from a long-term strategy.

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    Quote Originally Posted by newentry View Post
    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,
    I think a trader always very careful about his balance protraction. but problem on market analyzing so if we want to to make profit from bigger loss then we should to trade as like professorial, because they always trade with simple risk. and their trading view very clear.

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    Don't loss you hope.

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