What's a Winner & What's a Loser?

[timsk]

A big 'thank you' to everyone for offering your various thoughts and suggestions. Plenty of food for thought!
Cheers,
Tim.

 

[0007]

This might seem an odd question coming from a 'T2W Advisor' and longstanding member - but there you go! Actually, to be more precise, it's what constitutes a break even trade that the thread is really all about. Consider the three trades below:

TRADE A
Gross P/L: +3
Commission: -2
Net P/L: 1

TRADE B
Gross P/L: +2
Commission: -2
Net P/L: 0

TRADE C
Gross P/L: +1
Commission: -2
Net P/L: -1

A large percentage of my trades oscillate around the break even point and, to my way of thinking, all of them are failed trades, including trade A. Even though it has a nominal profit, I don't really want to include it as a winning trade, as it wreaks havoc with the profit ratio. The success ratio can be affected too, if the results are evaluated literally. So, what do you do - does break even literally mean any trade with a Net or Gross P/L of 0? Or can a break even trade have a Net or Gross P/L of plus or minus 1 point, 2 points, 3 points or more? Do you evaluate your results before or after taking commissions into account? If you include comm's, do you also include an additional sum per trade to cover the other trading expenses such as data and ISP subscriptions etc?
Tim.

(Note to mod's: I'm not sure this thread is in the best place - feel free to move it if there's a more appropriate home for it.)

It's an interesting topic. I went through something like this quite a while ago. For accounting purposes I now consider any trade that isn't profitable (and you have to decide where the overheads etc fit in) to be unprofitable - nice and simple. Breakevens: why bother? aren't they just a high grade fail ? (I reckon I'm fooling myself if i consider them a low grade success).

For me, this all started with keeping stats so that i could monitor progress p/l etc. Trouble is, you end up like a politician if you're not careful: the stats become more important than the problem you're trying to crack. At one stage i even felt myself pressured to get out of a trade just to "keep the numbers rosy" - that's plain daft of course.

My solution has been to concentrate on the trading and do whatever is right (a potential minefield in itself !) and funnily enough the stats have come right also. I think the stats are just another tool like an indicator - to be used with a load of common sense and not in isolation. I've found that by keeping notes, when you review a trade you always know whether it was good or bad and whether you were being rational or not. Isn't that where the stats are an aid rather than an arbiter? That's my experience.

 

[tomorton]

My two pips-worth is that I count break-even trades (though its rare that this happens to the exact enny) as losers - because they don't succeed in the primary objective, which is to make me a profit.

However, I don't calculate my winners:losers ratio and only review my P/L in £ at the end of the calendar month. Shorter perspectives just get me chasing gain and probably over-trading. Trading has to be profitable, not each day or each trade or any proportion of trades.

But I find it productive to check whether I ran the trade in accordance with my own rules. So, using one of my TA set-ups that might signal an entry, target and stop, plus my own money management rules, did I actually run the trade according to these rules? The implication is that if I break my own rules and still make a profit on a trade, this must have been due to luck or acceptance of excessive risk. Such a trade, even if profitable, would be a failure and not to be repeated.

 

[TheTick]

This might seem an odd question coming from a 'T2W Advisor' and longstanding member - but there you go! Actually, to be more precise, it's what constitutes a break even trade that the thread is really all about. Consider the three trades below:

TRADE A
Gross P/L: +3
Commission: -2
Net P/L: 1

TRADE B
Gross P/L: +2
Commission: -2
Net P/L: 0

TRADE C
Gross P/L: +1
Commission: -2
Net P/L: -1

A large percentage of my trades oscillate around the break even point and, to my way of thinking, all of them are failed trades, including trade A. Even though it has a nominal profit, I don't really want to include it as a winning trade, as it wreaks havoc with the profit ratio. The success ratio can be affected too, if the results are evaluated literally. So, what do you do - does break even literally mean any trade with a Net or Gross P/L of 0? Or can a break even trade have a Net or Gross P/L of plus or minus 1 point, 2 points, 3 points or more? Do you evaluate your results before or after taking commissions into account? If you include comm's, do you also include an additional sum per trade to cover the other trading expenses such as data and ISP subscriptions etc?
Tim.

(Note to mod's: I'm not sure this thread is in the best place - feel free to move it if there's a more appropriate home for it.)

Surely it depends on your average winner and average stop loss. If on average you take 50 ticks as a profit or, say, 25 as a stop loss, then the trades above are all b/e. If, on the other hand your averge winner is 8 ticks for a similar stop loss, then these 1 tick winners and losers are going to have a much more significant impact.

You could always build a simple spreadsheet showing ticks onside/offside and exit relative to risk, and if you express these as %, you may get a clearer picture. This is something I have been doing and, whilst boring and time-consuming, gives you an idea of R:R but also how much you are giving back if you get out using trailing stops.

 

[charliechan]

timsk:

youre confusing your finances and realising the difference of cost of doing buisness and risk of doing business. im no accountant.

trading is a business. period. every business has costs (data, software, phone, desk, accountants, distribution/delivery (commission) etc)=x.

these should be covered in the profit generated through trading first and foremost.

then, you have risk of doing business. youre hoping you can make a profit from your transactions. (for some reason, speculators tend to worse at this than corner shop owners.)

i dont think its a good idea to break cost of business down to thetransaction level

jmo

 

[Windowsill]

But I find it productive to check whether I ran the trade in accordance with my own rules. So, using one of my TA set-ups that might signal an entry, target and stop, plus my own money management rules, did I actually run the trade according to these rules? The implication is that if I break my own rules and still make a profit on a trade, this must have been due to luck or acceptance of excessive risk. Such a trade, even if profitable, would be a failure and not to be repeated.

A much more sensible measure....Otherwise a danger of over analysis when you have already presumably analysed the way forward!:smart: