How do you rate strategy success?

Beginner Questions
1

Hi guys i have been running a strategy for the last 3 weeks and only traded for the first and third week (was on holiday for the second week so stayed out of trading as was out of the UK).

All trades were done on EUR/USD from MT4 running on my laptop which is hooked up at home, i only had trades being started between 0700 - 1600 mon - thurs (earlier tests proved fridays a no-go) with all other pending orders being cancelled at 1600.

I was going for 10 pips a pop, and did 35 trades, with 34 hitting the target and one hitting SL of - 100 pips. The rest hit 10 pips take profit so i made 240 pips over the two weeks with a 0.01 lot

All tests were run on a $300 micro demo account and i only normally had a max of 3 trades at any time running, with maybe 3 - 6 orders waiting around to get kicked off.

I am considering lowering my take profit to 5 pips instead of 10 and going with a 0.02 lot to try to reduce the probability of failure.

Now so far this sounds too good to be true for me that i am doing so well, and the recent drawdown this week made me look at my strategy again and is making me think of just 5 pips instead of 10.

My point is, based on what i have said above do you define this as successful. I know the rule if it sounds too good to be true it often is, so i have alot of testing to do to prove to myself if this is the real thing.

Should i go for 100 demo trades and see what the end result is or what do you guys recommend?

I would like to know what you all define as a successful strategy, is it a % profit made per month, pips made per month, % of trades closed positive. Please let me know.

Also what is important to me is making pips, not money. I do want to make money from this, but that is not my main goal. I want to be profitable in pips every week, so in theory every month i will be in profit, so when i do go live i can hopefully make a nice 10 - 15% profit on my account per month if im lucky.

Thanks guys.

2

Flawlessly executing the same strategy in the currency, futures and bond markets.

3

I can confirm i am executing the same strategy and following my entry and exit rules precisely with no deviation

4

Each traders statistics is exclusive to his/her understanding of the markets and cannot be duplicated.

5

I would advise not change your TP to 5 pips. If you consider that you are already giving a good percentage of each trade to the spread, the $ risked/gain would decrease your long run profitability.

A better option would be to look at all your past trades, or save a screenshot everytime a trade is closed. Try to see what the minimum SL is required to keep the same winrate. If you could get it down to 50 pips, and still won 34/35 trades, then your profit factor would be so much greater.

May I ask what your strategy is?

Also note that 35 trades is hardly a sufficent sample size with a Risk:Reward of 10. I have made EAs that have 30 win streak with moderately wide stop losses, but they end up only marginally profitable.

6

Hi thanks for the advice guys. Drpepperjunkie i use an EA which handles macd, sar and sma. It is a grid based system. Does the job so far but much more testing and tweaking needed hence all my questions this week.

It trades on the hourly chart so i only get a few trades a day. When the conditions are right it trades.

7

Since your risk/reward ration is 10, you would actually need to win 91% of the time to break even over the long term. That is probably not sustainable even though your win rate has been 97% so far. You might want to consider using a tighter stop.

8

Thanks Tim that was what i was thinking if i dropped my take profit to 5 pips i would of had a 100% success rate to date.

So i think a change of broker to oanda which would save me 1 pip on spread and the drop ftom tke profit of 20 to 5 might just do the trick for the long term :slight_smile:

Thanks for confirming my thoughts

9

I just finished reading Schlossberg’s Technical Analysis of the Currency Market which is a really good book. He’s one of the few forex authors who writes well. One of the chapters is on risk management. He makes the point that just like there are different trading methods for different personalities there are different risk management styles as well, that it doesn’t always have to be ‘you must have a reward/risk ratio of 2!’ That trading off reward/risk ratio for win rate is a perfectly viable strategy which sounds like what you’re saying.

10

Boris Schlossberg is nothing but another forex author. He wouldn’t be writing books if he was such a great trader.

11

Well I would personally use the statistical results of your system to determine if it is profitable or not. Profitability to me is a successful system. So some metrics i use Win rate, expectancy, Sharpe ratio, Reward:Risk Ratio ®, Profit factor, time weighted return, risk adjusted returns and total return. That should get you started on defining absolute results. But from looking at your figures you would have a horrible R and risk adjusted returns because of the 1:10 reward risk ratio. As it was said above you will need an exceedingly high win rate which will be hard to attain. But the metrics will tell the true story. I am a firm believer in data driven analysis and decision making.

12

Thanks thats very helpful :slight_smile:

Year i know the risk to return is quite bad, hence my testing :slight_smile: But it does need more testing before i could consider going live, i just have a few doubts about it so far, but better too much testing than a blown account :slight_smile:

13

I define it successful, at both: profit per month in money and pips. The % of trades closed positive depends a lot in your money management rules, and that´s varies from trader to trader.

Regards!

14

To answer your original question I measure success as a multiple of average risk. So if I risked 1% on a typical trade and made 5% for the week, that would be better than making 6% off of 2% risk.

15

All trading systems are rated using expectancy. That is provided you executed your system consistently everyday.

(Win rate X Average Profit per Trade) - (Lose rate X Average Loss per Trade) = Positive Number.

For example,

(65% X $100) - (35% X $100) = $3000

So, if you trade this over a course of 100 trades, you expect to make roughly $3000. That is a good system.

If you can achieve a positive number, you have a good system.

The higher number the better.

16

hi there,

would it be possible to share your EA…? the results sounds good apart from that huge 100pip drawdown loss…

thanks man