I wanted to share my drawdown chart with everyone. It's since I left my other job and began trading full time in Feb. It's on a trade-by-trade basis, not end of day data, so you get a real feel for drawdowns experienced intra-day. If it were end of day data, It would only have two down moves, as I've had two losing days Feb - April 13. Trade-by-trade is much better to see. Risk management is the most important thing in trading. It's important we take a look at this before getting into other performance data.
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The two real drivers of profitability: win%(how often you are correct), and win:loss ratio (the size of your average win:average loss) Most all my trading stats are calculated from TICKS NOT DOLLARS. Ticks don't lie and they speak the same language to everyone.
Thanks for sharing, Would you mind sharing how you calculate your position size? Do you keep it the same or switch it up based on stats you have of a setup/pattern working out? Do you usually give yourself 1 add per trade? I think this will turn out to be a good journal . Regards
Here's the second driver: win:loss ratio I forgot to mention, each data point on these charts is for the last 20 trades. The win% is simply the win % for the last 20 trades. The win:loss ratio is the average win: average loss over the past 20 trades.
Pretty simple position size calculation. How far away will the stop loss be? Based on that, how much money am I willing to lose on the trade? Then just do the math for the proper position. If my stop will be 10 ticks, and I'm comfortable risking $500, then I know I can trade 5 TF contracts @ $50/tick to make it work. Sometimes I trade a little more or little less on intuition, but still always want to stay within acceptable levels of risk for the trade. ANYTHING can happen on ANY given trade. Any single trade should not matter. An edge is only a ---higher probability--- of A happening over B. (quoting a lot here from, "trading in the zone" by mark douglas)
In my concentration of trading/backtesting, I don't work on winning percentages at all, I concentrate on keeping losing percentages extremely low, once you can acheive this, you can average down on each level, so even a breakeven trade on original signal trade, you make a ton on all of the add-ons exiting at that breakeven price of original entry. My breakevens for the week are split with winning trades normally which is more than fine with me. Whether one uses ticks or dollars really don't matter, so long as one is consistent in their backtesting and trading. I have traded so many many years using minutes, would mess me up too much as I have developed patterns that normally develop through the day.
Hey, thanks for the post and sharing your ideas! I'm pretty sure...High winning percentage = low losing percentage. Same thing right? When you speak of..."Average down on each level" Are you talking about doubling down on losing positions? The only time I do this is when I'm trading bad, and when I do it, I consider it a major trading mistake for me. Too risky imho. There will be times, for certain, where the market does not come back to breakeven on the original entry, and you can get burned. Even if your losing percentage is only 0.000001% I'm not consistent in my position sizes, so my trading stats would be flawed (from a pure trading perspective) if I mainly looked at dollars (versus ticks/points). I monitor dollar p/l of course, but the significance is that it is not MY FOCUS. How good would a doctor be if his main focus through the day was on dollars, an attorney, any professional? I feel a strong need to focus on PROCESS, and to me ticks are much more pure and the same for everyone, than dollars are. I've had a few days over the past two months where I've made really good profits for the day...that is looking at dollars. BUT if I look at how many ticks I took from the market that day, it's pretty bad (or even negative!) This usually means those "nice" dollar returns I made for the day, turn out to be very poor on a risk-adjusted basis. My main daily measure of performance is what I call daily PMR. That is Profits to Max Risk. (Daily P/L compared to the largest risk I took that day) If this PMR isn't greater than 1, I'm not happy with my performance. Just the way I think about things. Thanks again for sharing!