In order to ensure that I maintain some form of objectivity in trading I analyse my results statistically (i.e. with a mind to understanding how much 'randomness', or things beyond my control day to day can play a part). I have attached 3 files (ET onlly allows 1 file added per post so 2 are posted below). If you find this sort of thing utterly boring please don't fill up the board with "witty" comments about how you have a crystal ball to predict the markets, or some such. The point of these is to find objective mathematical ways of comparing cummulative results a trader obtains against what might be expected given certain assumptions about our "average" performance (a term that is difficult to define in practice). I invite you to play with / inspect these files and give feedback if you would like to. They are a source of calm to me as I can absolutely measure the how's, why's and wherefore's of my results. How do you use statistics constructively in analysing your trading? Attachment 1. Trading results simulation - how welll am I doing? This is probably the simplest of the 3 files. Here simply plotted is the result of a series of trades with initially defined probabilities. An interesting point is that the curves can overlap and diverge quite differently depending on the random numbers generated. So it's hard to gauge how successful we are as traders in the short term - agree / disagree? You can "run" the simulation by pressing "Delete" in any empty cell. Attachment 2. Prob lose calculator So a simple extension of the above file is to start to think about the probabilities of drawdowns. This attachment asks the question "how long might I expect to trade for in order to make a profit given my assumption of my expected win percentage?" The data given answer the question of no. trades to be profitable, which = 1 - probability of being in a loss. You can alter cell E5 to play with the graph. We all suffer drawdowns and periods of loss - this quantifies the probability of going a number of trades before we are "out of loss". Eventually, we all have the worst day of our lives, it's good to know how many bad days we might have prior to that so as to get a measure of luck / randomness at play! Attachment 3. Equity curves based on probabilities This one is conceptually most difficult / messy, but is really just an extension of 2 with a simulation output as a graph. Column A creates an output that has a positive expectation (i.e. on average it is > 1) but that has a non zero probability of being less that 0 (i.e. in some time periods a trader would expect to lose money, true?). Column B creates a summation over time (so the row numbers might be thought of as days / weeks / years depending on how you want to model your trading - graphed for you). Row 4 counts across upto 21 (had to stop somewhere!) and measures "number of overlapping timeframes". So if you click in D6 you'll see that A6&7 are summed. All of column D does this. Column E sums over 2 time boundaries (3 results in Column A), and so on, across the spreadsheet. Total drawdown occurs over any period of time across the whole lifespan of a trader (i.e. the minimun value in the cell calculated) and is given in AA18 (again, hitting "Delete" in an empty cell will run the formula for you). The most negative numbers will probably be in Column D, the least in Column X. However, the biggest drawdowns are 'hidden in clear view, in the middle somewhere'! And it's that drawdown that kills traders. The value given in AA18 varies and gives the drawdown relative to A6, the input "average". You can play with A6 to compare with your strategy if you want to. The point is simple: your strategy will have it's worst run culminating on 1 day - is it and are you robust enough to withstand it? If there are errors in these files, please say so. However, my purpose is to stimulate discussion on statistics. Once we know what is random, we can focus on what is real. What is real can be affected, the rest is a waste of energy and time. Time is limited. Do stats help you keep a clear sense of perspective when you trade? http://www.bbc.co.uk/iplayer/episode..._Joy_of_Stats/
Great thread idea! I began exploring some trading strategies in May and not long after began doing a detailed post-market analysis of the day's action to determine how many valid setups occurred, how much initial profit/heat on the trade was shown, and the likely result of each trade based on my ideal management of the trade per my rules. By doing this day after day for months, I eventually honed my skills and refined my rules, tightening my maximum protective stop and determining a minimum profit target for each trade. This not only helped me recognize potential setups quickly in real-time, it also increased my confidence, helping me become a more aggressive trader, and a more patient trader in allowing trades to work their way toward target. I attached a sample so you can get an idea of the level of time and effort that I put into my work day after day. Anyone who thinks profitable trading is the result of innate talent, special skills, inside information, fast computers, 20:1 leverage, large account size, etc. should know that, at least in my case, it's the result of nothing more fancy than thousands of hours of screen time and study, and every day I'm still learning something new. The sample analysis reflects an ideal day, not necessarily my actual trades/results. I currently don't trade every potential setup (though my goal is to eventually get to that point). I also frequently trade in messy price action, usually ending up with many break even trades trying to position myself for a break out of a range. I never include that crap in my analysis, but I do it all the time in my live trading I respectfully request that you not ask me about my notes, abbreviations, or tactics. I practice with-trend, breakout and confirmed counter-trend trading strategies, available from nearly any technical book on trading.
Perfect timing. I was just about to come back, after some thought, and respond to the "High probability setups" thread, and saw this. High Prob setups are a crutch for beginners, and they are only theoretical. Been there, done that. Odds in Vegas are absolute in some cases. Odds in the market are a mere perception. Stats will never lie, and you can use them in about a dozen ways I can think of, and probably (he he) a thousand that I haven't thought of.
RichbyNature, Really nice, great to see some discussion of serious, real, trading topics. See also: http://www.verticalsolutions.com/tools/pl_forecaster_pctwins.html http://www.verticalsolutions.com/tools/pl_forecaster_avgtrade_sd.html http://www.verticalsolutions.com/tools/system_ranking.html Some nice papers in that site as well, particularly regarding backtesting. --- Thanks for sharing also to Nod; this one goes for you
RN eta.... May be I should add to this Is the market uncertain â or not Can anything happen at any time â or not Do we ever know what a tradeâs outcome will be â or not So does high probability exist â or not Food for thought...
More food for thought... You know youre a redneck when__________? u put ur couch out in the front lawn u can't tell what is a high probability trade You buy a bunch of rotisery chickens from IGA for thankgiving You use a microwave as a cats sleeping place