Want to Know the Success of the Trading System? These are 7 parameters that can be used
Trading System – The question that often arises in the mind of a trader is what is the measuring instrument of the success of the trading system used. One example of a measuring tool for the success of a trading system that is widely used by traders is the win rate which is a measure to find out how big the event is compared to the loss.
It turns out it’s not just that you can use as a measure of the success of the trading system. There are 7 parameters that you can use to measure the success gained from trading.
The parameters that we will present here are based on one trading expert named Davis Jenyns. He worked for an Ord Minnett company and wrote a lot of books related to the trading system.
1. Win-to-Loss Ratio
The first measuring tool that you can use to assess the performance of a trading system is by using a win to loss ratio. If interpreted simply, the win to loss ratio is a comparison between the average win trading and loss. The trading system is considered to be on the right track, if the ratio shows you get win more often than loss.
But remember not to overly consider these statistics to be completely correct.This is because the win to loss ratio does not consider how big the win or how much loss. Certain trading systems may show a bad win to loss ratio but can be very profitable. For example, the trading turtle system has a ratio of 40:60 and this is very profitable.
2. Load Win and Average Loss
The next important thing you can use is to make sure the average pips value when you win is greater than the average loss. For example, you do a backtest with 200 times trading. Of the 200 trading times there are around 150 trading losses and there are about 50 win trades, so the win to loss ratio becomes 15:75.Things like this cannot directly state that the trading system is good or bad.
Continuing the example above, you must measure the average win and average loss. If the average win is USD 2000 and the average loss is USD 500, then you can be sure that the trading you are doing is still profitable.
The statistical measurement tool that is very important for you to use when measuring a trading system is expectations.
The calculation formula that you can apply is:
(% Win x Average Win Size) – (% Loss x Average Loss Size)
For example if you have a trading system with 80% chance of winning USD 100 and 20% chance of losing USD 1,000, the results will be as below.
(80% x USD 100) – (20% x USD 1,000) = – USD 120
From the calculations mentioned above it is very clear that the system can make you mutilate slowly.
Simply put, an expectation measuring tool can show how many returns are expected from every money you trade. If the trading system shows a +120 expectation result, it means you can get an average return of 120 times the capital you use when trading.
However, the figures shown above are only in the form of samples. The reality in the field will be very difficult to get expectations up to hundreds.
As a benchmark, Jenyns provides a measure of expectations that you can use to measure trading success. If you are able to achieve expectations of USD 0.60, then that means you are already on a big road and a successful trading system.
4. Maximum Consecutive Losses
Try to look back at the results of the tests carried out to find out how many consecutive losses you experienced in conditions of profit. This is important for you to know because these statistical data can provide confidence when you experience successive losses.
For example, you are facing five or six losses in a row. If you do not know how much maximum loss is faced, then you will think that the trading system does not work well or wrong.
This is what goes into many mistakes made by novice traders. Because in fact you can experience 10 defeats in trading but still profitable.
5. Maximum Drawdown
This gauge is the worst period of falling from the top in the trading system that you have. Regardless of how much loss you experience and how many times the loss you get.
This measuring instrument is often calculated automatically if you connect a trading account with an account analysis tool such as MyFXbook. Actually there are no specific standards that must be followed, you only need to ask yourself about the comfort or not of such drawdown. If someone feels uncomfortable with him, then you need to tamper with the trading system that has been made.
The above is very closely related to the risks and returns that you will get later.Because forex trading has the rule of “High Risk, High Return”, which means that the greater the risk that is ready to be borne, the greater the reward will be obtained.
The most important thing of all is that you have to choose a trading system and use a system that you feel comfortable using.
6. Source of Trades / Number of Trading Positions Opened
This statistic is a measuring tool that traders rarely talk about, namely the number of trading opportunities that you make in a period. The size of a good trading system does not give a signal too often or too often. The number of positions opened is at least the same as the number of trades you can open realistically.
If a trading system gives too many signals, then you will be forced to choose many signals at a time. This will be dangerous because the trading system will depend on the subjectivity of the traders.
Conversely, if the trading system only creates few trading opportunities, then you may not get optimal trading opportunities on the market.
The last measurement tool that you can use to measure the trading system and is a fairly important measurement tool is the Return of Investments (ROI) in one period .
This measuring tool is important because getting profit is the ultimate goal of forex trading done by anyone. Even so, you still have to measure the success of the trading system by using other measuring instruments that we have mentioned above.
That’s 7 parameters that you can use when measuring the success of the trading system that you use. Hopefully the information we have conveyed above can inspire and increase your insight.