Monitoring your Trading Statistics

 

Video Transcription:

Hey, traders. Welcome to Video 11 of the Forex Beginners Course. This is
Cory Mitchell. And in this video, we are looking at monitoring your trading
statistics, brought to you by Investoo.com.

So, trading requires more than just hammering keys and jumping in and out
of positions. You need to monitor your performance so you can see what you
do well, and what needs work. While there are many statistics you can
track, these three are the bare minimum.

The first one we’re going to look at is your win percentage. This is how
many trades you win out of your total number of trades, typically over a
period of time. So, I’d calculate it at minimum over a monthly period. You
may also want to track it on a weekly basis but monthly, for sure. So, if
you make 100 trades in a month, 63 of them were winners, that means your
win rate is 63 divided by your total number of trades which is 100. That
gives you 63%.

If day trading and you track it daily and you track it weekly and track it
monthly, this will allow you to potentially see market environments you
should avoid; or market environments that you do very well in.

For example, you may see that your win percentage is extremely low on
Mondays, or on Fridays for example, when volatility is typically a little
lower. So, you may opt to be more selective on trades on those days, or
avoid trading them altogether. If you are losing every single Monday you
trade, don’t bother trading it — just trade the other days. You are
actually going to make more money by avoiding that one day, or a certain
time of day.

So, the next one that we want to look at is the win-loss ratio. This shows
you how much bigger your winners are than your losers. You can have a very
high win percentage, but if your losers are big compared to your winners,
you could still be a losing trader. So, you could win 90% of your trades
but if you only make 1 pip on your winners and lose 10 pips on your 1
loser, you’ve actually lost money. You’ve made 9 pips on the winners and
you’ve lost 10 on the 1 loser. So, you’re actually down money.

Your average, how we calculate this is simply your average win divided by
your average loss equals your profit factor. Ideally, this should be a
percentage. What we want to do is, let’s say you’ve made three trades
today. You have a 5% winner, a 7% winner. So, the average of those two, you
add them up and divide by two. That gives you an average of 6% that you
made on your trade — just that’s a huge gain, but let’s just pretend.

And your average loss, let’s say you had one losing trade where you lost 2%
of your account. So, you’d take six divided by two and you have a profit
factor of three. You made three times as much on average on your winners
than you did on your losers.

Basically, you’re adding up your wins for the day or if you want to do it
over the weekend, your wins over the week. Or if you want to do it by month
you’d add up all your wins over the month, percentage preferably, and
divide it by the number of winning trades. Add up your number of losses
over the day, over the week, over the month. Then divide it by your number
of losing trades. And you plug them into this formula to get your profit
factor. That number should be at minimum above one.

If it’s one that means your average win was the same as your average loss.
So, if you made 10% but you also lost 10%, that means your profit factor
would be 1. So, basically your winners and losers are the same. That is
okay, but you’re going to need a high win percentage to make money.

Ideally you want to be above one. If we look to the profit targets I
discussed in Video 10, you are going to have a profit factor of at least
1.6 or a win-loss ratio of at least 1.6, because your winners are always at
least 1.6 times your risk. So, if you’re risking 1 pip on a trade, you’re
making 1.6. Or if you’re risking 10 pips, you’re making 16 pips on the
winner.

Basically, my average win-loss ratio should never be below 1.6 as long as I
stick to that strategy. And it’s typically going to be higher, because I’m
also getting on some of my position at 2.6, 3.6 times my risk; so my
winners are always going to be bigger than my losers.

It may not be exactly 1.6, even though that’s what I put out, because
occasionally on an order you’ll have a little bit of a slippage so you
might make a little bit more on one trade; you might make a little bit less
on another, just due to where the trade executes. But mine is going to be
above 1.6 or higher, typically around 2.5 or so.

That’s a good win-loss ratio. At one, as I mentioned, you’re going to need
to have a high win percentage. If you’re below one, you’re going to have to
have a very high win percentage in order to be profitable. If your win-loss
ratio is very high — so, let’s say you have a three to one or a four to
one ration, so this ends up being a four or a five, then your win ratio
doesn’t have to be quite as high.

Another one you want to look at is just simply your profit percentage. This
is the percentage profit on your account capital, typically calculated over
the course of a month. The percentage reveals more than just a dollar
amount. I could say, “Oh, I made $10,000 this month,” and that sounds like
great. You made a great return — but until you actually know what account
value that was traded on.

So, if you make $10,000 on a $2 million account that’s okay, that’s a 0.5%
return for the month — not very good for an active trader. That means you
are making about 6% a year, which you’re not going to be able to make a
living off of, so not ideal. But if you make that $10,000 on a $100,000
account, that’s a 10% return for the month, which is much more respectable.

So, by knowing these stats you can catch others who are trying to mislead
you. Lots of Internet ads will try to sell you signal services, books, all
sorts of things based on some stats that they try to cloak in some mystery.
But you can use these stats just to kind of ask yourself some questions
about what they’re offering.

You can also ask yourself these questions yourself, to try to catch
yourself when you’re trying to see yourself. You may for instance tell
yourself, “I’m a great trader. I’m a very high winner.” But if you’re
actually losing money at the end of the month, you’re not a good trader.
So, you’ve got to look at these statistics and they kind of give you a
baseline for how you should be judging your performance, and also ways to
improve it which we’ll get to in a moment.

Let’s look at some of the ways you may mislead yourself or that others may
mislead you. The company may quote their dollar return but not the
percentage. So, for instance, you may see a banner that says, “I make
$2,500 a day,” but on what amount of capital? If you’re trading a million
bucks, 2,500 bucks a day is not…it’s okay, you’re making 0.5% but it’s
not extraordinary.

But if you’re making 2,500 bucks on $100,000 account, that’s a pretty good
day. You’re making 2.5%. If you’re trading $50,000 account, that’s a huge
day. You’re making 5%. It doesn’t take long to rack up some capital and
make it 5% a day.

So, it’s very subjective to what the amount of capital is, which the
percentage at least lets you know. It doesn’t let you know that they’re
trading this amount of capital, but it does let you know how they are
utilizing that capital. Are they utilizing it well, or are they making 1% a
day, 2% a day, 10% a month, 20% a month? It gives you more information than
just saying, “I make $2,500 a day; I make $100 a day; I make $10,000 a
month.”

A high return begs the question, if you make this 2,500 bucks a day, let’s
say, and it actually is a good return — let’s say he’s trading a $50,000
account so you’ve made 5% on this day — you need to ask the question, “All
right, you said you made 2,500 bucks on this day. That’s a 5% return.”

You also have to question, “What are the bad days? If you make 2,500 bucks
on a good day, hopefully your bad day is less than that, or slightly less
than that or about the same.”

If you have a high win rate, you can make 2,500 bucks a day most days and
lose a little bit more on a bad day that’s fine, because if you make 2,500
on 4 days and lose 3 grand on the fifth, that’s fine. You’re still going to
be making money.

But if you make 2,500 bucks for 4 days out of the week and then lose 20,000
on the fifth day, you’re in deep trouble. So, you need to ask yourself,
“What are the bad days?”

High percentages; you’ll also see this very soften. Someone will say, “I
win 95% of my trades.” But always remember, if you can win 95% of your
trades and make 1 pip on 95 trades but on those other 5 trades you lose 100
pips, you’re going to get killed.

So, always remember, if your losses are way bigger than your profits, it
doesn’t really matter what your win percentage is. You’re probably going to
lose money.

And a lot of profits, some guys will take profits for one or two pips, but
you can on your losing trade, end up taking a huge loss. So, don’t always
just accept this win rate as something that you can rely on. You also have
to put it in the context of the win-loss ratio. So, if your gains are
bigger than your losses and you make 90% of your trades, you are
phenomenal.

All three ratios should work in harmony. Your monthly profit percentage
tells you the story, like the basic story; whether you’re profitable for
that month. But your win-loss and win percentage can actually help you
isolate where you are having potential issues. So, one example would be if
you have high win rate but you’re still losing money, the problem is likely
in your win-loss ratio.

So, if your losses are bigger than your profits, you have two options. You
need to reduce the amount that you lose on each trade. Or, you need to let
your profits run longer. So, as I mentioned in the last video, if I’m
risking 10 pips my profit’s always 16. That way I know my profits are
always bigger than my losses, and I know that my risk is defined.

Letting profits run or cutting losses isn’t an arbitrary decision you make
on each trade or well in a trade. You need to strategize, create a plan;
how are you going to do this? So, whether it’s my method of the 1.6 times
risk…so, if you’re risking 10 pips you make 16 on your profit target.
Whatever that is, you’ve got to strategize it out, write it down, create a
plan and then stick to it.

We’re going to look at creating a trading plan in a couple of videos. But
this is the process you want to start is thinking, “How can I actually fix
these ratios?” Don’t just go into a trade and then make all sorts of
changes within that. Instead, strategize. Think about it before, and then
do it for every single one of your trades.

So, let’s just quickly go back. Let’s look at these again, so these are the
ones you want to look at: your win percentage; how many trades you’re
winning out of your total number generally over a month, a week or a day;
your win-loss ratio, so take your average win percent divide it by your
average loss percent. It gives you a profit factor that should be at least
greater than one.

And your profit percentage is your monthly profit, or typically your
monthly profit on your account capital. So you would just add up how much
you made, divided by your account capital, to give you a percentage return
for the month. Ideally, we want that to be positive.

Be aware of people who are trying to deceive you based on these stats, by
only giving you part of the picture. Also be aware when you try to deceive
yourself by saying, “I made 2,500 bucks today. I’m awesome,” but the next
day you lose 10,000. That is not a good win-loss ratio and is probably
going to lead to your account being decimated. So, keep these in mind and
think about strategizing how you can improve these ratios to improve your
overall monthly profit.

Until next time, happy trading.

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