3 Trading Stats that you must have

Hello Traders, Thiru Nagappan here, founder of Master the Markets, Elite Traders Conference and The Traders Open Day.

Today’s topic is all about three trading stats that you must have.

If you remember I have spoken about the three step trading methodology in our talks at conferences and seminars. One of the components of the three step trading methodology is the optimisation component. This is when you’re looking at your stats to see how you can optimise your strategy or review your stats, look at what going wrong, what’s going well and what can be improved. In that review, there are a few stats that you definitely must be looking at.

The first one is reliability. What this means is basically the percentage of winners to losers. So we are really looking at how many trades actually won as opposed to those lost. For example, sometimes you can have systems where there’s a 40% reliability of winners and 60% losers. Or you can also have systems where you have 70% winners and 30% losers. You can have either one. Usually with swing traders when you’re looking for low frequency and high profitability strategies, the reliability of these reduces because each trade is looking at giving you a higher profit. Let me explain that as we come to the second point. So the first stat you need to look at is reliability of the strategy.

Here’s the second point. Not only is it important to look at how many times you’re winning – because that’s not really the whole picture – so the second point is where we need to know your average winner to loser. What we call average win to loss ratio. Basically this is very similar to your reward to risk ratio. One critical thing I must mention is that some traders say that they have to take a 3:1 reward to risk ratio trade or a 2:1 reward to risk ratio trade – that is all expected reward to risk ratio. You need to see how well is your strategy actually performing. That’s the most important point. What we’re then looking at is then we’re looking at the average. We know the actual winners, so how much did they make to the average loss that they made as well. So even though you may have a 40% reliability system, it’s only winning 40% of the time, if your actual win is say £200 to an average loss of let’s say £80, we’ve got about 2.5:1. So we’re looking at average win to average loss and that’s what you need to calculate in your stats. How much is it winning on average to your average loss?

The final thing you need to know about stats is expectancy. In terms of expectancy what you’re looking at is basically your average net profit. Your average net profit divided by your average loss gives you your expectancy. What this figure is actually telling you is how much each of your trades is making. For example, if you had 0.5 all it’s saying is that through the expectancy formula and normalisation factor what it’s telling you is that each trade is making you 0.5% profit.

Here’s a very quick tip for you, something to think about. If you want to increase that number you need to reduce the loss factor. This is why every single trade you take, the most important thing I keep stressing to traders, is to keep managing and focusing on the risk because the up-side will always look after itself. When you do that, when your average loss is minimal, that expectancy number really starts shooting up.

So these are the three things you can look at for improving and optimising your systems to see how well your strategy is doing. First is reliability, second is average win to loss ratio, and third is expectancy.

Do look at these stats, read up on them, or even post a comment or email us your questions if you have any challenges in knowing how to come up with these figures. We have trade log journals that measures this with all the formulas in our Traders Essentials Kit.

I believe this has been very useful for you to analyse your stats and analyse your strategy performance so that you know how and where you’re going wrong and how to optimize your strategy to push that equity curve into positive territory. That’s the end. Until the next time, as we always say, stay disciplined, follow your trading plan and keep Trading Like a Master.

Posted in:Videos

There are no comments on this article.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.