Good traders and their profit-loss ratio
Good Traders always keep their average winners significantly higher than their average losers, though this amount may vary with different traders and different tactics.
That is a simple statement on the surface. But in truth, in that statement lie most all of the things that make a trader a trader. This concept cannot be given justice in this short article. This simple statement involves initial risk to reward numbers, which of course involve targets and stops. It involves expectancy. It involves management, Sharpe ratios, batting averages, % of maximum target analysis, and % of projected target analysis. It involves record keeping and overall trade analysis. The list goes on and on. Most of all, it actually involves a measurement of the consistency and the discipline of the trader.
So, while this brief article can’t begin to get into all of that, we can look at some of the most common pitfalls so you can avoid them. When traders first start off, the issue is usually ignoring stops, for the list of reasons you most likely know by now. Either the trader gets so damaged by this step that they are finished, or the pain becomes enough that they learn to correct the problem. Actually, stops are an easy problem. That is because you are aware of them. If you miss a stop, you begin feeling the pain. It is like a knife in your back, you can’t miss it.
If the trader gets past that, they get to an area where many of you might be right now. It is an area where the trader meets with some success. As a matter of fact, they start feeling pretty good about things. They are having a lot of winners and they see that their favorite strategies are doing well. The only problem is, for as good as they feel, they are not growing their account It is just sitting there. It is hard to believe, because they feel successful. Sound familiar? This might be a reason, why they have finally decided to get into AgenaTrader.
If this is you, then the rule of today’s lesson most likely applies. It is highly likely that you feel good because you have several winners. But your losers, though they are fewer, wipe out all the gains. If you do the math, that only means one thing. Your average loser is bigger than your average gainer. This is usually not a good thing.
Now, if the answer could be typed in this concluding paragraph, it would be. But, as you probably have guessed, the answer is quite involved. It involves an analysis of your trading results and trading plan to see if the problem lies in your initial play selection (reflecting on your knowledge), or the management of the plays (reflecting on your discipline) or a wide variety of combinations of the two, which may stem from a poor trading plan or improper analysis. For now, at least, be aware that if this is your issue, it needs to be dealt with. Or else you will likely spend a trading lifetime in mediocrity.
Which brings us once again to a consistent TradingJournal. One should be added here – naturally the TradingJournal should represent its equity curve as exactly as possible and it should be correct on cent and comma. But the really important thing about TradingJournal is not the exact equity curve, but the fact that you can easily analyze your trading behavior and the various trades can be retrieved at a later time from the drawer. Whether the displayed equity curve is right down to the last detail or not, e.g. because the subsequent swaps from cannot be properly attuned by the trading platform or similar, is irrelevant – at least at this stage. The only important thing is that you can subject your trades to a sustainable and long-term error analysis and thus significantly reduce their error potential.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. Hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. All information on this website is for educational purposes only and is not intended to provide financial advice. Any statements about profits or income, expressed or implied, does not represent a guarantee. Your actual trading may result in losses as no trading system is guaranteed. You accept full responsibilities for your actions, trades, profit or loss, and agree to hold this information harmless in any and all ways.
Börsengeschäfte sind mit erheblichen Risiken verbunden. Wer an den Finanz- und Rohstoffmärkten handelt, muss sich vorher selbstständig mit den Risiken vertraut machen. Eventuell dargestellte Analysen, Techniken und Methoden stellen keine Aufforderung zum Handel an den Finanz- und Rohstoffmärkten dar. Diese dienen ausschließlich der Veranschaulichung und Weiterbildung und Informationszweck und stellen keine Anlageberatung oder sonstige individuelle Empfehlung dar. Sie sollen lediglich eine selbstständige Anlageentscheidung des Kunden erleichtern und ersetzen nicht eine anleger- und anlagegerechte Beratung. Der Kunde handelt gleichwohl auf eigenes Risiko und auf eigene Gefahr. Beachten Sie bitte die aktuelle Fassung der AGB.