Win-percentage of winning trades
Loss-percentage of loosing trades
# Trades-the total number of trades evaluated in this row
R Value-the maximum amount of $ one is willing to risk (and loose) per trade
#R per Winner-is the average number of Rs won in the 10 winning trades
P&L-profit or loss for a given row
Although the math in the tables is very simple, it is quite revealing. A trader that performs with only 40% of winning trades can still make money. If the 40% winner trader was risking $100 per trade and was getting into trades that yield 2Rs, he can still make $200 every 10 trades. And if his winning trades yielded 3Rs, then he can make $600 every 10 trades. Amazing, isn’t it?
Normally, we would say that a person in any field that performs well only 50% of the time is not very good at what he does. However, if you manage to stay at 50/50 in trading, you can do very well. A 50/50 trader that risks $100 per trade, if his winning trades yield 2Rs average, he can make $500 every 10 trades, and at 3Rs he can make $1,000 every 10 trades.
So, I think that entering trades that have a the potentially high ROI and never loosing more than 1R are also very important, and maybe crucial, to the trading game.
6 comments:
Anarco,
Nice post. I am also working on consistency right now. I think it is good to eliminate the swings that can be associated with day trading and finding a consistent strategy.
Good luck,
Tyler
Anarco,
For a trader that who uses a fixed risk for every trade, ROI is very important and a low risk entry point yields a better ROI (like your ABX trade a couple of days before). To be profitable one should have an accuracy of (atleast)
a) 66.6% if your reward:risk ratio is 1:1
b) 50% if R:R is 2:1
c) 33.3% if R:R is 3:1
Cheers!
Day Tradr
P.S. Anarco, I liked how have waited for a low risk entry in your last ABX trade.
Tyler: Your consistency is worth admiration.
Hey Tyler~
I feel I have not yet found "my trading way" but I certainly want that.
I like your CF entry today!
Cheers,
Hey Day Tradr,
I want to start tracking these numbers closely so I can see where I am going wrong or what I need to improve. Thanks for sharing your data!
Cheers,
Anarco,
The entry in CF was good, but the exit sucked. Ha ha.
I downloaded a spreadsheet from Trader Mike that you might be interested in if you don't already have it.
I have made some modifications to it so that it works for me.
First, when I am looking at a trade, I plug in the stop and the entry, the sheet calculates the number of shares I should buy and based on my risk and calculates 1R, 2R and 3R so I can see where these levels are.
I also plug in my 38% Extension and it automatically calculates how many Rs away it is, so I can see if the trade is worthwhile.
Lastly, the sheet keeps track of my total R, P&L. It also shows how much money I have at work in every trade to compare what size works best for me as well as the % I have risked based on the size of the trade. Keeps track of wins and losses in a percentage, etc.
Sorry that was long. Let me know if you need it or if you have something similar.
Tyler
Tyler,
I have already my set of spreadsheets, but it could be nice to see that XLS to see if I can improve mine.
Thank you!
Post a Comment