FOREX TRADING

In all the good trading books, it always mentions that you should make detailed records, mainly for yourself, but also for tax purposes. What they never seem to do is go into any detail regarding analysis.

The goal and aim of a profitable trader is to constantly improve himself and make him the best he can possibly be. To do this, you need to analyse your trading results and then take action to constantly improve them!

One of the most misunderstood and not very useful statistics is the ratio of winning trades to losing ones. This is what most people who are not traders, will ask you, thinking that if you win more than 50% of your trades, you must be doing well.

The reason it is not a true reflection of your trading capability is that on average, you may lose eight out of ten trades, but still make money. If your risk and money management are good, and you do do this, you could be losing around 10 pips on each losing trade, but making around 100 pips on each winning trade. Now you can see that an ‘eight out of ten loser’ may actually be considered a good trader!

A better gauge would be to calculate your ‘average winning trade’ (The number of pips / number of winning trades) and conversely, your ‘average losing trade’ (The number of pips / number of losing trades). If you now subtract the losers result from the winners result, you will see the difference. If this is negative, you are not making money and need to revise your strategy! – This is the most useful and general guide to your trading profitability.

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