http://hotcopper.com.au/threads/the-brains-trust-2016.2672447/page-5799?post_id=17752190
@gj0201. Thanks for the trading results on that fourth gold chart of yours that you posted in the XSO forum tonight. That’s really interesting. It’s very difficult to get benchmarks from other traders as to what performance is good or bad or should be expected. I‘ve done web searching and research and talking to traders as best I can and have some ideas but only very sketchy information on performance statistics that I can benchmark.
Sorry for the long post here, but it’s an important subject in trading that you’ve raised and anyway it’s late at night. I moved to the XMD thread as I feel I can get a bit more technical here.
Firstly, the fact you are doing this sort of analysis on your trading is excellent and a big step towards developing a professional approach, if I can use that term. Most people think they are better traders than they are. I certainly did for a long time. But our ego’s and biases makes it hard to really accept our results, let alone publish them. It’s critical though in order to improve. It’s like my golf handicap. I hit the ball a long way and it feels like I’m a good golfer, but I’m a C-grader and don’t score very well because of occasional mis-hits and bad short game. In fact I’m crap if I look at my scores. Unless you analyse your performance honestly with yourself, you’ll never improve.
So, to offer you my performance in return (for my main trading account). This financial year 2015-2016:
Number of completed trades 35. (note I have done 25 positions, some of which have multiple entries. A small number of the trades are hedging trades so these losses were deliberate against a matching profit)
Win ratio: 58% (number of winners / total trades)
Profit ratio: 1.5 (approx. 80% av profit on winners / 50% loss on losers)
This performance has actually been very profitable. However, I have varied my position sizes to test a few different metrics this year, so that skews the results. Note also that this is all leveraged trading, not buying shares outright which should have a much higher win rate. Buying spec stocks could be anything.
My targets for the year were higher than this. I’ve been told profit ratio should target 3:1 and I set out to get a 70% win rate. (Your pretend trades achieved a 68% win rate). However, I now think these are unrealistic targets. I’ve also heard it said that a win rate of 60% in trading is exceptional and will make you a rich man. I’d suggest that for the way I trade, this benchmark of 60% win rate and 1.5 profit/loss ratio is probably as good as I could realistically maintain over multiple years.
Jesse Livermore said that you never know until you bet. So looking at your actual trading stats rather than that paper trading, you’ve had 52 trades, for an equivalent 31% win rate (16/52) and profit/loss ratio of 1.58 ($33.69/21.34)
These figures make sense to me and I can see you’ve been honest with this. You profit/loss ratio is good enough. You need to get your win rate up. It’s as hard to do though as getting a golf handicap from C-grade to A-grade. Note also that they are linked, going for a higher profit ratio will lower your win rate and vice versa.
I don’t know what entry/exit criteria you use. I didn’t understand “10 position entry” comment. Your stops seem tight and you’re using hourly charts.
I can’t believe people trade hourly charts. I rarely even analyse the daily. Weekly and monthly charts are far more stable. Trading with leverage on the daily or hourly I expect is increasingly subject to uncontrollable volatility due to computer trading these days and being whipsawed out. I think that’s one factor that would pull down your win rate.
The other factor I suggest is a bit controversial, but I’ll let you in on a big secret that took me 200 trades and 2.5 years to figure out because I respect the analysis that you’ve done. Using stops, particularly tight stops, has a negative edge.
I started my technical trading using exclusively mini warrants which have an automatic stop and I would put my mental stops above it at what I thought was logical chart points. I constantly played with rules on stops and amounts of leverage used. The outcome was pretty consistent over time, a win rate of 34 – 40% as you have found.
I eventually realised a key trading dilemma is that if you don’t use stops with leverage you’ll go bust, but if you do use them you’ll lose more slowly over time. I think it’s a big factor in why 97% or so of traders lose and give up. I subsequently redesigned my whole trading methodology to avoid using any stops at all, mainly by using options but the details are probably another post.
Hope that feedback helps, but I think your stats are normal, not embarrassing, for the type of trading that I think you’re doing and probably better than many others who aren’t prepared to post them
(20min delay)
