Unbiased Forex Broker Experts

Part I. Tracking Your Performance

Tracking Your Performance - Forex School
Commander in Pips: So we have passed through different multiple processes that are absolutely necessary for having a successful trading process. Some of them make a direct impact, such as technical analysis tools. Others make indirect influence on process, such as a trading plan, for instance, but we can’t say that it has less importance. So there is one important issue that we’ve not talked about it yet, but that has outstanding importance for trading. This is performance tracking. Usually this is done by keeping a trading journal.

Pipruit: Hm, I like journals…

This is performance tracking. Usually this is done by keeping a trading journal. - Forex School
Commander in Pips: All the better, then this will be a pleasure for you. So, why do we have to keep a journal at all? Why are we absolutely going need it? First, because if you do something on a consistent basis this teaches you discipline and build up good trading habits. Second, did you ever think why does the Captain of any ship keeping a logbook, the same as any airplane has build-in “black box” logbook. Many scientists and athletes are keeping journals. The answer will be the same – a journal lets them to track performance. If something will go wrong they can understand what was done wrong, where the reason was and how to fix it. The same is with forex trading. When you do some trade, sometime later you will forget the reasons and your emotions during this trade, why you have done something this way or that way. If you have some bad habit – you will repeat it again and again. Without a journal you can’t catch it, you just will not understand why your account value is in a solid downtrend. A trading journal lets you replace bad habits with good ones, catch mistakes and destroy them and also to understand what you’ve done well and repeat it on constant basis.

Pipruit: And why we can’t use a software statement? Now any broker provides access to a history logbook of your trades.
Commander in Pips: Because logs of software statements have insufficient information. All that you can see is lot size, entry price and exit price. But you do not see how you have entered and why you have exited. For instance, suppose you have analyzed the EUR/USD market for an hour just before today’s trading session and developed an excellent context to enter long, although your gut tells you that something is wrong with current price action, something that you don’t like in the picture. Still, you are following your trading plan. Suddenly, the market accelerates against you - closer and closer to your stop. By your negative emotions you step out from your trading plan and close the position with loss. But right after that some important data (say NFP) is released and the market explodes right to your former profit target. You understand that this falling was just position closes before release. This is very common situation for traders.

The question is – will you remember the reasons for entering and exiting of this trade after two weeks or a month without fixing it in your journal? Will you be able to catch the bad habit of stepping out from trading plan or good habit of following it? Will you remember the context for this trade? The answer is no. If after some time you will not understand what you have done and why you have done it – your trades are in a bad way, it’s a wash-out. The major conclusion that we can make is that keeping your trading journal is a discipline issue, and disciplined trader stands closer to being a profitable trader. If you do not want to be an enemy to yourself – it’s better to keep a journal. All profitable traders keep a journal and review it. Yes, this is not bad idea to pass through your journal during weekend. When it will become too extended then at least through some recent trades.

So, what goals could be achieved by keeping a trading journal?

- Understanding where you are relative to your defined goals in this business;

- Extracting of bad as will as good habits in your trading process. This could be as in psychological issues as in your trading system, methods and approaches;

- As a result you will understand how to shift bad habits to good ones and what you have to do to eliminate bad habits and unprofitable trading methods.

These issues in fact are of exceptional importance, since not all of us will able to find a job in some super-duper corporation on Wall Street under the wing of some really big financial Whale (do whales have wings?). That’s why probably most of us have limited resources to succeed on the trading field. We have to pick from our essential money to start trading. 

As a result we can’t pay for the services of a really good trading mentor or visit his/her seminars and so on. Thankfully we have internet and forums, where we can share with each other and study from each other. So, a trading journal is not bad as a mentor’s replacement. You will be able to catch your trading errors by yourself and eliminate them.

Initially you have to have rock hard discipline in keeping it, since newbie traders mostly tend to abandon it, since this is a bit boring. But, later it will turn into constant habit to do it. If you will keep it right, it will help you to understand:

- when to trade and when not;

- what to trade and what not to trade or stop to trade;

- Is your risk management optimal or you can increase/reduce your risk per trade;

- How long to trade in a row and how much to rest;

- Catching the start of an unwelcome period in trading;

- Starting favorable period in trading and other issues.

Pipruit: Looks like you’re right. So, how it is better to do it? What include and what we can skip?​

What to journal?

Commander in Pips: Although this is YOUR journal, so it will be different from mine and contains your own personality we will specify some lines that almost any journal has. These lines are not a rule of thumb – you have to add anything that you think is important for you. A journal is like a diary – it contains the personality of person who keeps it.

Trading is not only a science, it is also an art and as with any art it also includes a psychological component, hence

1. You have to fix all that you feel before the trade, during the trade and after the trade. If you are under some psychological pressure and make mistakes due this reason – your journal will help you to understand it, since you will break your trading plan again and again due to psychological and emotional reasons. By keeping a journal you will catch it fast. This large point could include some subpoints:

- overall market view;

- trading plan for each trade and trading session with charts and notes;

- description of entering into the trade and exiting;

- assessing of results and execution of trading plan;

- extracting and understanding mistakes (even if they have led to profit)


2. Performance statistics

This is the second large part of your journal, but it does not fix only dry results, you have to force statistics work for you. Here is how we can do this:

- separate performance of every pattern/context that you use in your trading system;

- Statistical data and numbers (mostly could be found in your broker’s log):


1. Win/loss ratio;

2. Number of trades per day;

3. Number of lots traded;

4. Win trades quantity – as long as short separately;

5. Loss trades quantity – as long as short separately;

6. Dollar wins and dollar losses;

7. Average dollar win and loss;

8. Number of consecutives= wins;

9. Number of consecutive losses;

10. Average profit per trade;

11. Average loss per trade;

12. Maximum and average drawdown.

13. other


Currently most trading software provides this data automatically – you can simply download it. Also you can apply some different classical coefficients, as NPV or Sharp ratio to take into consideration not only absolute profit or loss but also volatility of your account and drawdown.

Pipruit: Well, I approximately understand why we need the first point, but how will the second help us? Let’s assume that I know all that numbers and so what?
Commander in Pips: I'll tell you. The first part is for analyzing of performance of all possible tools in your trading arsenal that could be tested with such table as shown below. This kind of table should be created for any context/pattern that you trade day by day. Let’s say that you are trying to assess effectiveness of trading Butterflies on EUR/USD. First you have to make description how you trade it:

“1.27 or 1.618 Butterfly Buy/Sell at (Specify time frame). Enter right at completion point. If 1.27 butterfly then stop is placed (number of pips) beyond 1.618. If 1.618 butterfly stop is placed beyond for (number of pips). Target (specify target), say 0.382 retracement of overall butterfly move. Stop moves to breakeven after moving in favor of position for (number of pips). Enter in two steps with ___lots each.” 


Next you can fix results in table:

Forex trading results table - Forex School
After some observation from this table you will be able to make very important conclusions:

- Is trading of butterflies profitable in general or not?

- What market is most suitable for trading it?

- What time frame is most suitable for trading it?

- What could be adjusted in butterfly trading – profit target, risk management, lot size etc.

For example you will see, that you have not won any butterflies at GBP/USD – then you can stop trading this pattern on this pair. You can see that market in 90% of cases reaches at least 50% resistance, while your profit taking usually at 0.382, so you may start to take more profit and place farther profit targets.
Another application of this table is analyzing notes. If you’ve noted here and there that there were some mistakes made with trading some particular cases and total profit could become, say 700 pips, but you’ve earn just 420 pips – you will find out that with this table, as well as the reasons for mistakes and after some time will be able to eliminate them.

So, that could be done with any pattern or context on any time frame and in any markets. All that you have to foresee is comfortable ranging at different parameters, so you could analyze it. You may add some other columns and rows that could be useful personally for you. This was just an example.

Speaking about dry statistical numbers
 – they are also very useful. For example, for considerable period of time you have 65% of profitable trades. Suddenly you see that your ratio has dropped to just 50%. That gives you a specific period of time to analyze – you know where to dig. Second, you easily could find the reason. If you follow to your trading plan and didn’t make any mistakes – the reason is in the trading system – wrong context, wrong risk management, stop placement or something else.

Another case could be as dropping of money profit within the same win/loss ratio, or vice versa – dropping win/loss ratio but increasing in overall profit. By scrutiny of these numbers you may come to the conclusion that, for instance, your system mostly loses money during a ranging market and makes money during a trending market, or vice versa. This lets you make adjustments and improve it. Without such a tool as a trading journal you can’t improve your trading skills or even find the way how to improve it. You may not even see the necessity of this improvement.

Comments

Administrator
7 years ago,
Registered user
Please use this thread for questions, answers, and comments on this lesson.
rajesh bhujbal
6 years ago,
Registered user
Hi commander , first of all, thank you very much providing us such an important knowledge. you are my first mentor !!!!
by the way, i have an idea to save the charts on MT4 , so that we can just add these charts in our trading journals.....

All you have to do is,
open all the charts (h1 + daily + Weekly + monthly ) in four different windows. use all the initial indicators or tools for analysis on these charts.
now go to (file> profiles>save as) on MT4 , and save this profile with any name (like EroUsd). so that you you can open same profile any time you want. and you can save as many profile as you want.

* Now In order to save these profile in your PC ,
go to - C:\Users\User\AppData\Local\VirtualStore\Program Files (x86)\MT4 file\profiles


and save these profile files in your PC.
so next time all you need do is copy these files on the same locations given.(In case you change your broker or something.)
also you can create profiles for especially for journals.

best of Luck......

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