Trade Analysis

Hello all,

I've spent a long time (too long some might say) learning about trading, deciding on a style of trading best suited to my personality, learning about money management and getting together all the tool I'll need for trading.

Well, finally, I've started to paper trade my system. Obviously I'm now recording all my trades in order to analyse what went right and what went wrong. And this leads me to my question.

What do you look at to decide if you are trading well?

Is it...
Your average profit?
The stability of your trades?
Your capital exposure?
Your Equity Line?
etc

Currently I look at my exposure ie amount in stocks / capital and my average profit, but I feel there should be a bit more science behind it.

Any suggestions would be appreciated.

sharriss said:

What do you look at to decide if you are trading well?

Click to expand...

1. Am I hitting my Entry and Exit precisely as I should based on my system criteria?

2. Am I adhering to my Risk & Money Management rules?

3. Am I making money?

Those are the only 3 rules you need to work by.

One more to bear in mind is "Am I getting out of a losing trade where I said I would and not giving it a little bit more room then I was going to."

Don't even think about this one. Just act when it's time to get out. Ignoring this one will cost you more than you think. Remember: "The first cut is the cheapest."

Thanks for the replies, but I consider those rules part of my system.

I always enter when my system says enter.
I always exit when my system says exit.
I always follow the money management rules I've set myself.
and yes, I am making money (not much but definitely up)

What I was really asking was how can I tell that this system, money management, entry and exit signals are doing well (other than how much money it's making)... or is this the only criteria?

I know there are lots of measures and ratios (Sharps, Ulcer, K-ratio, drawdowns, annual return etc) i was just wondering if anyone uses them and if so which ones.

the 3 rules given are good .

but I would add : what markets are you trading , because the situation varies a little.

I look at sharp , it measures how much drawdown volatility there is in your account.

don't ask me how it's calculated but it alerts you to how much you had to use of your risk cap, to make the returns that you did.

http://www.miapavia.com/homes/ik2hlb/sr.htm

Will tell you in simple terms about Sharpe Ratio.

What do you look at to decide if you are trading well?

Click to expand...

My state of mind at the end of the day.
Some days you can make money but know you could have made more but you have been trading like a donkey. Some days you make little or even lose but you know you traded damn well considering what might have been so end up content about what you did.

I feel there should be a bit more science behind it.

Click to expand...

There is not, but a lot of people might try and tell you there is before launching into a sales pitch.
IMHO for every additional variable you add so your system is likely to become less stable. Simplify, refine, simplify....

sharriss,
Over what period of time has your methodology proved consistently successful?
Has it been mainly mono-directional or a complete mixture of longs and shorts?
What has been your ROCE?
Average win size to average loss size?
%age of winning trades?
Which markets?
Without knowing the above it's impossible to say whether you specifically are trading well.
Generally speaking you are doing better than most if you are consistently profitable over a long enough period without excessive drawdown, but I guess you would like to know if your standard is acceptable or capable of improvement by using other metrics.
You say, "I've started to paper trade my system."
You might find trading with real money makes adherence to your rules more difficult as the emotional element absent in paper trading is difficult for many to control.
Richard

sharriss said:

Hello all,

I've spent a long time (too long some might say) learning about trading, deciding on a style of trading best suited to my personality, learning about money management and getting together all the tool I'll need for trading.

Well, finally, I've started to paper trade my system. Obviously I'm now recording all my trades in order to analyse what went right and what went wrong. And this leads me to my question.

What do you look at to decide if you are trading well?

Is it...
Your average profit?
The stability of your trades?
Your capital exposure?
Your Equity Line?
etc

Currently I look at my exposure ie amount in stocks / capital and my average profit, but I feel there should be a bit more science behind it.

Any suggestions would be appreciated.

Click to expand...

You say that you decided on a style of trading and developed the tools you need and are now paper trading your system. Have you tested all the elements of your system and are now paper trading in order to find out if your ideas work out in real time, or are you paper trading in order to test your ideas? If the former, money is not so much an issue since you wouldn't be paper trading the system if it weren't profitable. If the latter, then of course you'll want to track your win:lose and profit:loss numbers in order to find out whether or not the system is worth paper trading at all.

Keep in mind that paper trading will tell you if your system is unprofitable, but any profitabiility is only potential and will have to stand the test of real time trading with real money. However, the point of paper trading is to test the system, not to determine how you'll trade "for real" or how much money you'll make.

What to look at

Is it...
Your average profit?
The stability of your trades?
Your capital exposure?
Your Equity Line?
etc

My own approach is very different. The program I wrote trades only several times per year but I think your questions are somewhat universal so thought I'd respond.

Drawdown and/or exit strategy is very important because in real life these things will affect you. They're easy to look at in a past study and say: I could have done that, but in reality a 10% drawdown can be excruciating.
Secondly, if the method is survivable re the above, is it doing better than the best mutaul funds? This is probably a central question. Without too much work, one can find 15% mutual funds, so all the work better be doing better than that.
Speaking from personal experience, I made the largest advancements in my program once I traded the signals in real time and saw what happened good & bad, in real-time.
I quickly found that the sterile envirnment of a spreadsheet back-test has little to do with how we feel when our feet are to the fire in real-time.
That being said, the corrections I've made have brought the two into alignment and the only trades I've made for a year are from my own program.

Regards, Steve

wisestguy said:

the 3 rules given are good .

but I would add : what markets are you trading , because the situation varies a little.

I look at sharp , it measures how much drawdown volatility there is in your account.

don't ask me how it's calculated but it alerts you to how much you had to use of your risk cap, to make the returns that you did.

Click to expand...

Wisesestguy,

I'm only looking at FTSE100 and FTSE250 stocks and I'm looking to hold for a few weeks time period.

I'll look at Sharps, thanks for the reply.

twalker said:

http://www.miapavia.com/homes/ik2hlb/sr.htm

Will tell you in simple terms about Sharpe Ratio.


My state of mind at the end of the day.
Some days you can make money but know you could have made more but you have been trading like a donkey. Some days you make little or even lose but you know you traded damn well considering what might have been so end up content about what you did.


There is not, but a lot of people might try and tell you there is before launching into a sales pitch.
IMHO for every additional variable you add so your system is likely to become less stable. Simplify, refine, simplify....

Click to expand...

twalker,

I agree about the simple system and I'm trying to get that.
The variables I'm interested in won't affect my trading system, just tell me if the trades i have made are profitable, stable and sensible.

Thanks for the reply, I really value your posts.

Mr. Charts said:

sharriss,
Over what period of time has your methodology proved consistently successful?
Has it been mainly mono-directional or a complete mixture of longs and shorts?
What has been your ROCE?
Average win size to average loss size?
%age of winning trades?
Which markets?
Without knowing the above it's impossible to say whether you specifically are trading well.
Generally speaking you are doing better than most if you are consistently profitable over a long enough period without excessive drawdown, but I guess you would like to know if your standard is acceptable or capable of improvement by using other metrics.
You say, "I've started to paper trade my system."
You might find trading with real money makes adherence to your rules more difficult as the emotional element absent in paper trading is difficult for many to control.
Richard

Click to expand...

Mr Charts,

I have only just started paper trading and have just 7 open and closed trades in my review spreadsheet.

My system selects both Longs and Shorts, but the 7 are mainly Longs at the moment.

ROCE is exactly what I'm asking about - how is it calculated?

I know that "real" trading will be more difficult than this paper trading but I want to be confident with my system before using my own money.

I backtested and made about 12% net but my system only works with current data and my backtesting system isn't particularly sophisticated.

Thanks for the reply.