How To Measure Trading Success? Create Your Tradesurfer Trading Index
Tags: measuring success, trading plansHow To Measure and Build Trading Success
With the British Open Golf Championship starting thursday many golfers around the world can only imagine how they would do next to Tiger Woods and company. What many amatuer golfers have in common though is that they each maintain a golf handicap index. For those that haven’t been frustrated by the game just yet, a handicap index essentially allows golfers to create a score or ranking for themselves that takes into account how tough the course was and the score they attained.
So why not create a trading handicap?
Introducing the Tradesurfer Trading Index
Trend traders in general aim to keep losses small and let their winners run. What that really means is that while their winning percentages may not be that high, the trades that are winners will on average be larger than their losers thus allowing them to be profitable in the long run. Many traders refer to this as their win loss differential or average winners compared to average losers.
How Can Traders Create Their Own Success Metrics?
While not absolutely perfected, something to pass the time this weekend in between Tiger Woods golf shots. Lets consider three different trading scenarios.
How To Measure Trading Performance
—-Winning Percentage
—-Average Win vs. Average Loss Ratio
Examples
Trader A:
40% Winning Percentage
2-1 Ratio winning trades dollar amount to losing trades dollar amount
Calculate Tradesurfer Index
40 X 2 = +80
Trader B:
80% Winning Percentage
1-1 Ratio winning trades dollar amount to losing trades dollar amount
Calculate Tradesurfer Index
80 X 1 = +80
Trader C:
40% Winning Percentage
1-2 Ratio (Losses double what wins are so negative)
Since negative take 100-40= 60.
60 × 2= -120 (Negative Tradesurfer Index Number!)
Really the key is to let your winners run and limit losses which should hopefully result in a positive average winner to loser ratio. It also outlines how successfull traders don’t have to be right all the time. How do your results stack up?
So there you have it, a quick and simple way to evaluate your trading success.
Trend Trading Strategies:MACD and Moving Average Trend BreakoutsPosted by Derek Moore on Jul 15, 2009 | Permalink
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