How to measure success? - The performance parameters

[tnsn2345]

Hey...everyone is welcome to post their thoughts as long as they are related to the subject in discussion. So no matter what they are, Oilman, SG, for mature souls like us, we do not need spoon feeding, but only through discussions and delibrations can we learn. So request you all to pour in your thinking on this subject here.

Ok..next, qualitative param is 'Performance of Decision Making', when we measure Decision Making (DM), we have to define what is DM. If we toss a coin, we know what is head and a tail, similarly for refined trading, DM is not necessarily favourable or unfavourable trade, but it is our ability to define what will be the magnitude of the favourable trade.

Hence at,

Time = T0
Price = P0

and our decision making (you may use any system / method to arrive) tells us that at,

Time = T1
Price = P1

Our method / system should tell us the price (P1) at time T1.

Now at time T1,

Price = < P0
Price = P0 < P1
Price = P1
Price = > P1

In such a case, how do we rate the outcome of our decision making...

Since we had decided that at time T1, the price will be P1, we get full marks only when the price = P1 and not otherwise.

The rating system would be as below :

Price = < P0 (Score: D)
Price = P0 < P1 (Score : C)
Price = P1 (Score : A)
Price = > P1 (Score : B)

Mapping the results of this param 'Performance of DM' we will get a bar chart of four variables A, B, C, D.

Since we have broken things down, interpretation is not a very difficult thing now. We can add one more variable i.e. Long or Short trade to the above and get two different data set for analysis....

next..how to interpret the results....


Regards,

p.s. running out of time now..will try continuing later tonight / tom.

Note: My contents and contributions on this thread will primarily be understood by a net profitable trader. They might help enhance or optimise performance. For budding / struggling ones, they can tweek some param to suit their needs.

 

[EagleOne]

Ah, nice! Mon ami TNSN2345 is posting again after a long long time!

 

[linkon7]

when i take a trade i make certain assumption based on a pattern on price / indicator that has historically been proven profitable over a series of trades.

So if the target P1 is achieved in time T1 is a matter of luck as we can never know on a trade by trade basis if a trade will fail. Once the trade is complete, it would be another data addition to the series of such occurrence of the said pattern and the overall score of that pattern can be graded.

But shouldn't the grading be based on how i handled the said trade.


If the trade goes as per plan and hits target i give myself an A

If i realise that the trade has more juice left and at target T1, i decide to just lock some of the profit (by making a covered call / put , creating a spread etc) and let it run, i give myself a A++

If i realise that the trade is loosing momentum and i exit before target is hit, i give myself an A+

If i realise that the assumption on which i took the trade is no longer valid and

a. I exited before the stoploss is hit and the target is hit anyway, i would grade myself an A.

b. I stick to the trade and the stoploss hits, i would grade myself a B.

c. I stick to the trade and the target is hit, i grade myself a D. Simple reason is, next time, i would hesitate to get out when the edge is gone....!

So the net outcome of a trade cannot be a parameter of my success.

END cannot justify the MEANS.

 

[trader.trends]

I am trading a system where I am trading all the calls generated by the system. One day it generated seven calls and I took them all ending the day with minor loss. Today after three calls which went into a loss decided that from today, I will stop trading for the day after three consecutive losses. Fourth and Fifth calls went into a loss and I was patting myself on my back for my decision. Sixth call gets generated and goes on to give 130pts profit under the system. Arrrrrrrrrrgh. Could have ended the day with good profits in the pocket.
In trading we need consistency to win. We have to be consistent in what we do. Today, if I stopped after three calls, then everyday I must stop after three calls, I cannot pick and choose the number of calls that I will trade on each day.
The way to make money is to find a method to trade profitably and blindly do it again and again and again and again and again and again and again!
We need to practice the winning method until we get what we want!

 

[trader.trends]

If the trade goes as per plan and hits target i give myself an A

If i realise that the trade has more juice left and at target T1, i decide to just lock some of the profit (by making a covered call / put , creating a spread etc) and let it run, i give myself a A++

If i realise that the trade is loosing momentum and i exit before target is hit, i give myself an A+

If i realise that the assumption on which i took the trade is no longer valid and

a. I exited before the stoploss is hit and the target is hit anyway, i would grade myself an A.

b. I stick to the trade and the stoploss hits, i would grade myself a B.

c. I stick to the trade and the target is hit, i grade myself a D. Simple reason is, next time, i would hesitate to get out when the edge is gone....!

So the net outcome of a trade cannot be a parameter of my success.

END cannot justify the MEANS.

Linkon, here your system is a combo of mechanical and discretionary systems. Entry is almost always mechanical as per the system but exits are either completely discretionary or part discretionary and part mechanical. This is wonderful if your 'reading' of the market is correct. This is also wonderful when the target is defined.

Suppose only the SL is defined and the target is left undefined then discretionary exits can cause a lot of pain as mentioned in my post above of today's trade. Some times we save losses but at times we give up profits. To me it appears it is best to stick to making the exits also mechanical. This would give a chance for systems' positive expectancy to make is appearance over a number of trades. The higher the number of trades the nearer we will be towards the systems' ideal results.

 

[tnsn2345]

when i take a trade i make certain assumption based on a pattern on price / indicator that has historically been proven profitable over a series of trades.

So if the target P1 is achieved in time T1 is a matter of luck as we can never know on a trade by trade basis if a trade will fail. Once the trade is complete, it would be another data addition to the series of such occurrence of the said pattern and the overall score of that pattern can be graded.

But shouldn't the grading be based on how i handled the said trade.


If the trade goes as per plan and hits target i give myself an A

If i realise that the trade has more juice left and at target T1, i decide to just lock some of the profit (by making a covered call / put , creating a spread etc) and let it run, i give myself a A++

If i realise that the trade is loosing momentum and i exit before target is hit, i give myself an A+

If i realise that the assumption on which i took the trade is no longer valid and

a. I exited before the stoploss is hit and the target is hit anyway, i would grade myself an A.

b. I stick to the trade and the stoploss hits, i would grade myself a B.

c. I stick to the trade and the target is hit, i grade myself a D. Simple reason is, next time, i would hesitate to get out when the edge is gone....!

So the net outcome of a trade cannot be a parameter of my success.

END cannot justify the MEANS.

Dear Linkon and friends,

On the next stages, I would mention my thoughts on evalauting the TRADE. And that is where quantitative evaluation will come into play. Presently we are evaluating qualtitative parameters of performance. Hence when I say, performance of DM, we are just evaluating our decision making process.

I may have missed mentioning this point directly - mind process things faster than fingers that type :-( . And that is what is limitation of interacting on virtual forums.

Ok...what I mean by we are evaluating DM and not the trade???

When we make decision at T0 (P0) for what will happen at T1 (i.e. P1), time between T0 and T1 is the outer boundary of our trade i.e. we will enter and exit a trade between T0 and T1. So do we enter at T0 and exit at T1 only, NOT necessarily, while in most cases we may enter at T0 sometimes we will not (when not, when we like to refine our entry by looking at the same event in smaller TF charts / methods). Ok...if this is getting complicated..then park it here...and we continue assuming that we have entered at T0 at price P0, now between T0 and T1 we will have - something what I call as Review Period intervals, one may have 3 - 4 - 5 etc period of review intervals depending on the TF being traded, risk, volalitity expeceted etc. So what do we do at the review periods - we review ofcourse yes...but we do close the trade during such reviews. i.e. we are not holding our position till time T1, as you mentioned that the dynamics have changed and your original view at T0 does not hold good. We may exit at a small profit, at a loss, (read stop loss for those who trade accordingly). At review period, mind will act differently as we are already in the trade at T0, intending to hold it till T1. This is an actual trade, where exiting or holding a position will depend on emotions, what mind thinks and reads. This is a real trade. So when we exit in between T0 and T1, the price could be anywhere betwen <P0, P0<P1, P1 or > P1. And this we can evaluate separately.


Ok...now coming to what I have mentioned is Evaluation of DM (or to make things more clear...evaluation of our CALL. Here I am putting my mind to test and provide me with an answer of P1 at T1. And this is what we are evaluating, we are evaluating our intelligence, our ability and accurary to predict the outcome in the defined future (i.e. at time T1)

We am I putting my mind to test for it's accuracy. Why????

Simply because only if my mind is tested for it's accuracy, I take only those trades which are profitabe. My strike rate increase, this parameter (evaluation of DM) helps in increasing the strike rate of the trade, so getting > 70% accuracy consistenly can be targetted and attained. Only if my mind / system is able to define P1 at T1, it will be a very very high probable trade. This filters from taking less probable trades. We will certainly miss some opportunities as our mind / system may not be able to define P1 at T1, but the ones which we take would be in most cases profitable and enjoyable trades.

I hope some meaning / conclusion can be drawn from my above thoughts.
Ok...now how to interpret the scores:

A = System / method can make good and accurate predictions
B = System / method is conservative and needs some adjustments/ refinement to enhance its utility
C = System / method is aggressive and needs moderation, so such DM are avoided
D = System / method needs to evaluate why DM was made and immediately arrest the flaws

The above are broad descriptions, one may use it in conjuction with Long / Short DM, time of trade, TF of trade.


Once the above analysis is plotted for a sample data, it will help us do the SWOT analysis. The end result is simply, increase accuracy / strike rate.


Regards,

 

[tnsn2345]

when i take a trade i make certain assumption based on a pattern on price / indicator that has historically been proven profitable over a series of trades.

So if the target P1 is achieved in time T1 is a matter of luck as we can never know on a trade by trade basis if a trade will fail. Once the trade is complete, it would be another data addition to the series of such occurrence of the said pattern and the overall score of that pattern can be graded.

But shouldn't the grading be based on how i handled the said trade.


If the trade goes as per plan and hits target i give myself an A

If i realise that the trade has more juice left and at target T1, i decide to just lock some of the profit (by making a covered call / put , creating a spread etc) and let it run, i give myself a A++

This I call - transferrig the trade i.e. it is a new trade altogehter though we only adding/removing some instruments, effectively it is a NEW trade for a NEW TF and will again have NEW T1 and a NEW P1 at NEW T1.

If i realise that the trade is loosing momentum and i exit before target is hit, i give myself an A+

If i realise that the assumption on which i took the trade is no longer valid and

a. I exited before the stoploss is hit and the target is hit anyway, i would grade myself an A.

b. I stick to the trade and the stoploss hits, i would grade myself a B.

c. I stick to the trade and the target is hit, i grade myself a D. Simple reason is, next time, i would hesitate to get out when the edge is gone....!

This is evaluation of Trade Management, on which I will state my thoughts as we go further.

So the net outcome of a trade cannot be a parameter of my success.


END cannot justify the MEANS.

I would discet the above in Decison Making, Trade Performance and Trade Management. So from T0 to T1, I would measure the above three. Also as we go further, we will talk upon :

1) Preceived Risk in Trade
2) Actual maximum risk of Trade
3) Actual Loss in Trade

4) Target profit in Trade
5) Profit potenial of Trade
6) Actual Profit in Trade

7) Risk Per Minute
8) Return Per Minute

9) Time in Market : Time out of Market
10) Time in Trade : Time in Market

....

Regards,

 

[tnsn2345]

Ah, nice! Mon ami TNSN2345 is posting again after a long long time!

Dear E1,

Only if I could write as good as you, I could convey/communicate atleast double in the same time I spend here. Time hi to nahi hai :-(

Regards,

 

[trader.trends]

Tnsn, whenever I read your posts on this forum, I find it illuminating and realize that like Eco's unlibrary, what I know is far far less than what I don't know about markets and trading.

 

[anuragmunjal]

hi Tnsn

as always I am intrigued by ur anlalytical abilities. needless to say that every single post of urs is a gem...
personaly, I get confused with too many parameters.
over the years I have learnt to keep my trading and analysis 'simple'.
if I have to judge my trading ..
a trade where I have followed my plan...A
a trade where I have not followed my plan..E
(again this idea originated frm one of ur posts in another thread)

I do not find a place fr B,C,D in my analysis..

just to give a practical example of what I mean to say, I am illustrating two recent trades..

turmeric (13-12-11) bot @ 4738, sold @ 4654.... I wd rate it A ...as I followed my plan..
Gargum (10-12-11) bot @ 18511, (15-12-11) sold @ 21424.. I wd rate it E..as I did not follow my plan.

regards