In this article, we are going to focus on failures. Traders are often so focused on their winning trades that they completely ignore their losing trades.
But the fact is that the loser has to learn more.
Below are three ways to learn from fruitless trades.
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1. Calculate your performance
Check your past transactions. If you can’t find them, get help from your broker.
Gather your profit and loss data so that you can analyze the factors that affect your overall performance.
Now, find your average profit:
Average profit = total profit / number of profitable trades
In the next step, find your total loss:
Average loss = total loss / number of non-profit transactions
When we get both numbers, we display it in proportion so that we can explore more about the root of our profit and loss:
Profit / loss ratio = average profit / average loss
For example, suppose you had 10 profitable trades with an average profit of $ 200 per trade and 5 unprofitable trades with an average loss of $ 300 per trade:
Profit / Loss Ratio = $ 200 / $ 300
Profit / loss ratio = 0.67
The profit / loss ratio is the average profit compared to the average loss per transaction.
In the example above, since your average profit is $ 200 and your average loss is $ 300, your profit / loss ratio is 0.67.
This means that your average profit is only 67% of your average loss.
In other words, you lost 1.5 times your profit (average loss of $ 300 vs. average profit of $ 200).
Fortunately, you won 15 trades in 10 trades.
Your winning percentage was 67%.
Win percentage = number of profitable trades / total trades
Win percentage = 10/15
Win percentage = 0.67 or 67%
The average profit over the average loss in each trade also shows you how well you manage and close your positions.
If your average loss is more than your average profit, ask yourself:
- Am I totally committed to or deviating from my core trading plans?
- When my trades are profitable, what influences my decision to leave the market?
- When my trades are not profitable, am I pre-designed according to risk management rules, do I exit the market or do I keep too many loss-making trades?
By answering these questions, you can identify weaknesses and develop better trading habits over time.
2- Go to the depth of loss-making transactions and analyze their roots
If you want to learn from past mistakes, you need to focus hard on your average loss and have the most control over it.
Even when you do your homework, a position can move against you in the blink of an eye, turning a lucrative deal into a losing one.
How you manage these conditions that can guarantee your success as a trader.
If you have been in this situation in the past, lean back in your chair and think about how long and why you allowed a deal to fall on you before you proceeded.
Focusing on medium losses helps you identify bad habits in your trading approach that are likely to affect bad results.
Most likely, you allow loss-making trades to continue for a long time. You should probably stop and close the damage sooner.
Exit the losing trade before reaching the average loss. You may see an immediate improvement in your performance.
It is possible to make more mistakes than to trade right, but you can still make a total profit. This is the ratio of risk to risk that we explained in the previous lesson.
But your average profit should be much higher than your average loss.
You may not be right often, but when you are right, you really are right.
The easiest way to track this is to calculate the expectations of your trading system.
3- Calculate the expectations from your trading system
The expectation is the average dollar amount that you expect to gain or lose in each trade based on your previous performance.
This amount combines the percentage of profitable trades and your average profit per trade with the percentage of loss trades and your average loss per trade:
Expectation = (% of winning trades multiplied by average profit) – (% of lost trades multiplied by average loss)
For example, suppose 30% of your trades were profitable in the last three months and your average profit was $ 300 per trade, while 70% of your trades were unprofitable and your average loss per trade was $ 100. It was a dollar.
Based on the above calculation, you should expect an average profit of $ 20 per trade.
Expectation = (30% * $ 300) – (70% * $ 100)
Expectation = ($ 90) – ($ 70)
Expectation = $ 20
As you can see, expectation is basically the average amount you can expect to win (or lose) in each trade.
You need more than luck to succeed in affiliate business.
If the opposite happens, re-examine your losing positions to see where this failure may occur.
Many new traders are so obsessed with their profit / loss that they are unaware of the larger situation.
Your trading performance largely depends on your expectations.
Summary
Regular performance monitoring helps you better understand the behaviors and other factors that can affect your trading results.
Paying close attention to the disadvantages is a great way to identify weaknesses.
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