I think % win rate by itself is irrelevant. For example, if I sell 3 standard deviation strangles I should win over 99% of my trades. That 99% win rate by itself doesn’t tell me anything about how much I am making per trade or how much risk I am taking.
On the contrary, I think the most useful metrics are total annual return and risk adjusted annual return. This helps you take a standardized metric and compare your strategy against a different strategy, like a buy-and-hold on the SP500 for example. The risk adjusted return tells you a bit more as you may be outpetforming a different strategy but taking on a tremendously greater amount of risk to do so.
There are many other important metrics(RoC, RARoC, sharpe, r-squared, std dev, etc.) but I think return and risk-adjusted return for a portfolio should be center and front.
Maybe for you @krugman25, but I think most people asking this question here are not dealing with anything more sophisticated than a series of buy and sell currency lots with a stop and a target. I doubt anyone here is dealing in option strategies at all at this stage - let alone portfolio issues - or maybe I have misjudged the level of experience and expertise amongst BP’s Newbies?
If you go back to your early days of learning your trade, did you monitor any of these?
Indeed, these measures are relevant and meaningful and useful - but I doubt these would be of any help for our Newbies at this stage, who are greatly relieved, and hugely pleased, to even get from one month to the next with a profit - and from simple day-trading in most cases, I suspect.
But you have answered the question whether the metric in this thread is of any great value as it stands, and it seems it is not - and I certainly agree with that!
So what direct measures are most helpful to them in their early days of simply piling up the wins against the losses in a series of straight, bread and butter, forex punts in order to tell whether they are actually improving or not?
There is nothing more simple than an annual % return. That is not special to options, but works for anything that produces a return, including Forex trading. Anyone trading Forex, even if it’s a 50$ account, has a portfolio. In that specific case, the portfolio would be their $50 Forex account.
Annual return is a simple and effective metric that elimates day/weekly/monthly noise and helps you see how you peformed relative to other strategies throughout the year, or even compare against yourself from previous years.
…And there we are, gone full circle, back to square one!
What is a “forex account”! :
Trader A has $50 in his single account and has no other equity for trading
-Trader B has $500 in his account and another $1000 allocated for trading but in his bank account until/unless needed
-Trader C has $50 000 in his account and draws a few thousand whenever he feels like it
Trader D has two accounts with $25 000 in each, one is for trading and the other for developing new ideas
And many, many more variations. How can one ask a simple question of “what percentage do you make every month” and hope to get a series of answers that are compatible and comparable?
All the metrics you mention are real and good, even essential in many cases. But I really doubt that one will get a set of replies here that are remotely comparable on the basis on which they have been calculated. Even if they are actually true in the first place! And if they are not comparable then they are meaningless, if not actually dangerous.
For the purpose of this thread I assume it was asked in the context of a single trading account with funds deposited for the sole reason of speculating. Just keep it simple
The amount one keeps in one’s account is an entirely arbitrary sum beyond the essential minimum. Someone who trades for income may draw regularly and keep a fairly consistent balance in their account. But an equity builder may only draw whenever he wishes to place funds elsewhere and in the meantime the balance, hopefully, is rising.
The balance can change quite dramatically from one month to another.
The point is what possible use is such a percentage figure given by other traders unless there is a consistent definition of the basis on which it is calculated by each of them.
And are we to assume that people are consistent in their monthly percentages whatever basis is used? Are we to simply, for example, use a 12 month moving window and divide it by 12? If so then shouldn’t we also ask what are the minimum and maximums during that 12 month period?
krugman25, and other doubting Thomases, I have nothing to gain by lying, I can’t show you other people statements but I can verify with my eyes their gain. I really do not care if you want to believe it or not 1% is not only possible and doable and I know traders and work with that are that emotionally mature.
It is unfortunate that the traders that really master this will not post in the open and it’s because in many cases NDA’s, Laws, etc. and doubting Thomas that no matter what you show them they would find a way to not believe.
Exactly, my point @midwest. There is no value in this kind of thread because nothing is provable, most people (including me) have absolutely no interest in giving such personal information, and even where it is given, it may doubted, challenged and totally unclear anyway on what basis it has been calculated in order to compare it with other figures.
But there we go, I’ve said my thoughts on the topic, it is naturally entirely up to the individual what metrics make sense to them in assessing their success/change. The main issue is to understand exactly what a specific metric is actually telling you and not just take it at face value. Statistics can be useful and, at the same time, can be totally misleading if one does not understand the underlying factors that it is measuring.
@anon46773462 Probably makes a good case on why a trader needs to decide how much equity they want to reserve for an account and not touch it if it all possible.
Next month I am going to add another $40,000 to my trading account. What I will do is calculate my return from the start of the year until that point. Once I add the $40,000, I will begin calculating my returns from scratch. I will then take all of those throughout the year and find my average annual return. It makes it a little more difficult to calculate a portfolio return if you are moving money around all the time, but it is still possible.
That’s also why RoC and risk-adjusted RoC calculations are a good secondary metric. It allows you to calculate returns on just deployed capital, thus the portfolio balance is irrelevant along with withdraws/deposits.
My monthly yield is even more random than the Forex price action itself because the strategies intentions are usually to produce fortune, the capital gain varies with the markets situation and the instruments focused on.
Monthly average being conservative applying my favorite strategies and tactics is usually greater than 5%.
I am not a particularly ambitious or aggressive trader, I usually aim (and I stress on aim) for about 10% per month. That is not always possible, sometimes my profit is more, occasionally I end up in the red. If I do end up in the red I try to be patient and not revenge trade the next month.
about .50% daily attached is this mornings. Keep in mind that trading a .02 Lot size. Today I did move to a ,05 lot size… big time for me. I will stay at .05 lot for at least a month until I am comfortable with the new risk proportions.
Return on Capital. That is the return on the actually money you have tied up rather than the return as compared to your overall portfolio. It’s a metric to see how efficiently you are using your tied up capital.
