In Trading, What Can Be Measured Can Be Managed

[analyst75 12]

I was having a catch up with my good mate and uber cool pad holder Jarrod yesterday – we both share a fascination with human performance. We are both interested in what we can get out of the machine we wander around in all day. As part of this quest he had recently been to see a dietitian who works with several AFL clubs and during the conversation they mentioned that as part of their regime they didn’t count calories. We both thought this was odd for the simple reason that without data you are operating in a vacuum, without knowledge about your calorie intake and in particular your intake of various macro nutrients you are simply guessing. And guessing simply doesn’t count when it come to assessing change.

 

The point here is obvious, if you are not in some way tracking the performance of your trading then you have no means by which to judge your performance. Without having a series of metrics that tell you how you are doing then you are also operating in a state of ignorance and in many cases delusion. I understand that some people dont want to track their system since this would defeat the entertainment component of trading. Knowing how badly you are doing would take the fun out of it. The same is true for people who struggle with their weight – they dont want to know how badly they are doing. Ignorance is bliss.

 

Performance tracking does not have to be complex – it only needs to tell you a simple story, how many trades did you get wrong, how many did you get right, what is your average profit/loss per trade and do you have more money at the end of the year than at the beginning. All this can be achieved in a spreadsheet with a little bit of playing around.

 

Author: Chris Tate

 

I’d like to end this article with some quotes:

 

 

“Be careful! It doesn't matter how good you are, if you don't use proper risk management you will fail.” - Jarratt Davis

 

“Having a diversified system does help but it does still make you wary of taking the next trade. But it always seems to be the next trade that you don’t take that turns things around.” – Chris Tate

 

Article reproduced with kind permission of http://tradinggame.com.au

 

http://www.tallinex.com wants you to make money from the markets

[zdo 20]

Good post.

 

Re:

Performance tracking does not have to be complex – it only needs to tell you a simple story, how many trades did you get wrong, how many did you get right, what is your average profit/loss per trade and do you have more money at the end of the year than at the beginning. All this can be achieved in a spreadsheet with a little bit of playing around.

I recommend adding a few ‘complications’

- an important metric is how much of price's ‘travel’ you do and don’t participate in.

This typically works out to be some permutation of how many potential trades you missed / how many setups and triggers you didn’t take

This metrics opens you ways to access and assess own personal set of dynamics re:

>strictness/looseness of your SETUPs and TRIGGERs, consistency of same, etc...

>bodybrains states

>and how well you recover - from wins and from losses, from victories and defeats, from rights and wrongs, from lucks and no lucks.

> etc etc

(btw it took sorties into the metrics of automated trading for me to really appreciate this metric in manual trading. In all my trading now, the only metrics more important than this one are measures of sizing precision...)

 

other manual trading metrics that may be needed individually ( all trader&system dependent btw )

-how many trades you take that your entry leads or lags too much

-how many trades you take that clearly don't make SETUPs and TRIGGERs threshold

-many manual traders will see their overall performance go up if they consistently set their loss point prior to TRIGGERs work and entry... in some systems even prior to SETUP completion... if your system needs it, simply counting the times you did and didn’t do that will raise awareness... and frequency of the bhvr, etc.