I am going through my journal and I have a question that maybe someone has already figured out. Basically when I take a trade I always record the Daily Range on the D chart. Then I put in my SL in pips and then I get a % which is the SL as % of the Daily Range. This basically says how large the SL was in relation to the current Daily Range for that pair. I think this is an important stat to keep track of. I also record how much was gained or lost on each trade, another important stat.
What I am looking to do is find out how I statistically make sense out of the relationship of these two stats. What I am trying to determine is if using a wider SL in relation to the Daily Range is beneficial or detrimental.
Does anyone know what I need to do in excel to relate these two stats together so I can make sense of them?
I have attached pictures of the info for your reference. I have attempted to make graphs and the closest one i have found is the scatter graph. I am just not sure if I am looking at these two bits of info correctly.
You will need to know what price did after it stopped you out. Since that information is not recorded in your journal, unless I’ve overlooked something, I don’t think that you will be able figure this out from the data you have.
You could run a backtest using your strategy and vary your stop size to find the optimal value.
Hi NScrilla,
I think I know what you are trying to do, but I do not know why. Let’s go back to basics. You seem to have a strategy (what and why) but it is not obvious how gathering this data will lead to a Plan (what, when, how much). So I assume that you wish to set a stop loss, and have a profit target in terms of % profit, for which you will feel comfortable about not being stopped out by being too close to the daily average range. I think you will find the average is not the parameter that will lead to low risk of being stopped out with too small a stop loss. It is the volatility of the daily range that is more important and how often that volatility will exceed the average. A great book on this entire subject (if you are so inclined to want to research) is Benoit Mandelbrot’s "The (Mis)behaviour of markets) for which he won a Nobel prize. He is better known for his work on fractal geometry, but his theories and practical work was adopted by financial markets to understand and try to predict “black swan events”. I digress. I have recently applied such relationship analysis to the rightsizing of an IT help desk by measuring the historical number of telephone calls arriving. My conclusion (though specific to that data set) was that the volatility of volume of call received within a busy half-hour period was more than ten times the average number of calls received during the 24 hour period, so the service desk must be staffed at the busiest period by far more bodies than the average to achieve a call abandonment rate of less than 3%. A real world example of what you may be wishing to achieve trying to relate your take profit plan and your stop loss plan with a “daily average” low to high number. I hope this is helpful and not confusing
Hmmm okay. So you are thinking that profit/loss achieved from different SL as % of the DR is not a useful stat. I was thinking that if I found that some traders with wider or a shorter SL in relation to the daily range was working better than others I could try to only take the trades that work the best (for example, 30% of the daily range versus 65%). If that makes sense…
Ill write down the book name for the future. Is there an indicator that shows the volatility of the daily range? I have sort of moved away from indicators recently and have been pursuing price action trading.
Hi Nscrilla,
I am not saying what you are recording is not a useful stat. But looking at the scatter graph there appears to be no dominant relationship between the two. I agree, intuitively, there ought to be a correlation. I also think just trying to visualise what is going on will often lead to a better understanding. I am a big supporter of data analytics, so I didn’t mean to put you off by my response. Keep recording data and keep analysing. It doesn’t hurt, and if you do find correlations that make sense, you may become one of the 1% who can make a living from forex.
