It is important that you know your stock trading system metrics, and you achieve this by conducting a systems research. You need to define your trading objective that is, know exactly what you want your trading methodology to attain. Now you have got a baseline you can use to check performance when you are trading in real time. Interpreting the results of your backtesting will help you make any informed system tweaks.
Profitability isn't the only criterion by which you need to judge a trading system . When you conduct a trading plan review you want to take a look at the key metrics. First off there is the win to loss ratio. This gives a good appearance of tradability. It's the ratio of average winning trades taken against the average losing trades taken. Nonetheless you must notice that this isn't the entire story, because it doesn't consider the size of the winning trades vs the dimensions of the losing trades.
The average value of your wins and losses is another important metric to understand. You want to make sure that the average value of your winning trades is greater than the average value of your losing ones. Expectancy defines a return in dollar terms for every dollar that you risk. If your system has an expectancy of +0.80, on average you could expect to make 0.80 times that amount risked in the trade.
The maximum consecutive losses is another important metric. From your backtesting, you need to know how many losses in a row your system sustained while still being worthwhile. A knowledge of this can give you confidence to weather a succession of losses which you will encounter at some point in your trading. The maximum drawdown is another consideration. You want to determine if you are happy with the scale of loss your best trading system allows for.
The number of trades is simply the number of trades a system gives over the course of a year. Your system should not give too many or too few trades. If there are too many, you will be forced to choose between signals which will add to the ambiguity of your system and ultimately make it far less effective. If there are too few trades given, your capital will be underutilized.
The profitability of your system is your ROI over a year. This is a crucial consideration, because, we should be fair, we are all in the game of trading to earn income. Nonetheless it's not the only consideration and must be balanced with the other actions. For instance, if your drawdown is too great, you may not be in a position to live with the thought of losing your whole float. All of these factors must be given due weight.
It isn't straightforward to calculate all these metrics, but thankfully, your backtesting software will very likely be in a position to calculate everything you need for your trading plan. The metrics will give you rules by which to trade, but you must also continue to watch your system and compare real time statistics with back tested results.
These metrics are invaluable and a stock trading system review is critical. Once you do such a review, the informed tweaks to your trading system will undoubtedly produce a far more profitable trading system.
Profitability isn't the only criterion by which you need to judge a trading system . When you conduct a trading plan review you want to take a look at the key metrics. First off there is the win to loss ratio. This gives a good appearance of tradability. It's the ratio of average winning trades taken against the average losing trades taken. Nonetheless you must notice that this isn't the entire story, because it doesn't consider the size of the winning trades vs the dimensions of the losing trades.
The average value of your wins and losses is another important metric to understand. You want to make sure that the average value of your winning trades is greater than the average value of your losing ones. Expectancy defines a return in dollar terms for every dollar that you risk. If your system has an expectancy of +0.80, on average you could expect to make 0.80 times that amount risked in the trade.
The maximum consecutive losses is another important metric. From your backtesting, you need to know how many losses in a row your system sustained while still being worthwhile. A knowledge of this can give you confidence to weather a succession of losses which you will encounter at some point in your trading. The maximum drawdown is another consideration. You want to determine if you are happy with the scale of loss your best trading system allows for.
The number of trades is simply the number of trades a system gives over the course of a year. Your system should not give too many or too few trades. If there are too many, you will be forced to choose between signals which will add to the ambiguity of your system and ultimately make it far less effective. If there are too few trades given, your capital will be underutilized.
The profitability of your system is your ROI over a year. This is a crucial consideration, because, we should be fair, we are all in the game of trading to earn income. Nonetheless it's not the only consideration and must be balanced with the other actions. For instance, if your drawdown is too great, you may not be in a position to live with the thought of losing your whole float. All of these factors must be given due weight.
It isn't straightforward to calculate all these metrics, but thankfully, your backtesting software will very likely be in a position to calculate everything you need for your trading plan. The metrics will give you rules by which to trade, but you must also continue to watch your system and compare real time statistics with back tested results.
These metrics are invaluable and a stock trading system review is critical. Once you do such a review, the informed tweaks to your trading system will undoubtedly produce a far more profitable trading system.
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