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TimRacette

Calculations to Help Fine Tune Your Trading Strategy: Part 2

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Once you’ve placed some trades with your strategy you can begin to analyze the data. A paper trade account is a great way to tweak and fine tune, but switching to a live trading account WILL change your results (this could be good or bad).

 

The more data the better, as a rule of thumb place at least 100 trades with your specific setup before analyzing the data.

Use these calculations to help analyze your data:

 

Winning and Losing %:

 

Winning % = # of Winners / Total # of Trades

 

Losing % = 100 - Winning %

Average $ of Your Winners and Losers:

 

Avg. Winner $ Amount = Sum of Profitable Trades / Total # of Winning Trades

 

Avg. Loser $ Amount = Sum of Losing Trades / Total # of Losing Trades

Average Hold Time of Your Winners and Losers:

 

How long do you stay in a winner versus a loser, are there noticeable differences? Find that sweet spot.

 

Reward / Risk Ratio:

 

How much do you winners beat your losers = Avg. W / Avg. L

 

Profit / Loss Expectancy:

 

This is the calculation that often gets overlooked, but is inevitably the most important. Expectancy forecasts your futures profits. It tells you the average $ amount you can expect to win (or loose) per trade.

 

Expectancy = [(W % x Avg. W) – (L % x Avg. L)] – round turn commission

 

Record Keeping Tips:

 

Keep track of your profit loss, commission, daily winners and losers, weekly profits, and individual trade setups. This will help you spot trends in your trading and fine tune even more. In my post Ideas for Building Your Personal Trading Journal I outline some more ways to make this process easier.

Tools to Help Fine Tune Your Trading Strategy

 

Trading Journal Spreadsheets – The best trading spreadsheets around.

StockTickr – A web based platform with a breadth of in-depth analysis tools and charts.

FinViz – My favorite stock screening tool.

Jing – Makes capturing screenshots a breeze.

 

Both Trading Journal Spreadsheets and StockTickr are great tools to help with the analytical side of your trading and in essence do all these calculation for you.

 

To become successful you must focus on trading effectively and not on the profit/loss. Do your research, and then act.

 

Here is Part 1 of this article Developing a Profitable Trading Strategy Step by Step.

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      Hello everyone!
      I am an advanced trader, with many years of experience (about 15 years - 10 living exclusively from this)
      I am going to give you some tips that you must know:
      There are going to be many people who tell you that trade is easy, that with only crossiing a line  with another one you will win a lot of money.... and that´s not true.  No, Sir, reality is far away from that. Many people who start arrive here with the hope that someone "gives them" a free method, they watch youtube videos thinking that this will give them the "strategy" and in a few days they realize that it does not work for them - they lose money - and then They go looking for a new one ... and so on. YES, IT´S TRUE YOU EARN IN TRADING, A LOT. BUT THINK: for a few to win (10% + any BROKER) many others must lose (90% people). YOU MUST HAVE A MONEY MANAGMENT FORMULA ( you can email me) People study so many years to live on this, not because they are dumb, but to know what they do, when, and have absolute effectiveness. It´s very easy to get lost here: do not disperse, jumping from one to another strategy WILL NEVER give you money, it will only waste your time and make you nervous when trading. PEOPLE WHO CHANGE THEIR METHOD CONSTANTLY : LOOOOSE ALWAYS.   If you have the knowledge to develop it, take your time and do it.  Always try it first on DEMO for at least 2 weeks! If not: search to buy a solid strategy (no you tube videos pleassse ! Avoid losing money! ) This is like any business, it requires some capital to start (capital = money in the broker + solid made /purchased strategy) If you are lost: I RECOMMEND YOU NOT TO WASTE TIME IN YOUTUBE, JOIN PEOPLE WHO HAVE EXPERIENCE AND IF YOU ARE GOING TO BUY A METHOD ... PLEASE !!!! DO NOT BUY 10 BAD AND CHEAP METHODS, SAVE MONEY AND BUY ONLY 1 BUT EXCLUSIVE AND MUST ALLWAYS HAVE SUPPORT !!!!!  Do not buy Signals! They never keep up with constant profits! One week will win and the next will lose. Nothing that does not depend absolutely on you will give you the money you are looking for. And if you do not have a strategy (made or purchased) do not even try PLEASE PLEASE PLEASE: DO NOT USE REAL MONEY! AT LEAST 2 WEEK DEMO FREE HELP HERE!!!!!  IF YOU FOLLOW MY ADVICE YOU WILL BE PART OF THAT 10% WINNER, email me.
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