We said that successful traders review their trades to improve, just like top performers in every business do the same. Success traders also look to the data to find correlations and relationships between success and failure.
Watching Your Stats
Forex trading is all about numbers, and so is your forex trading plan. There are some metrics which require more analysis than others:
Win Percentage – Your win percentage is the number of trades that end successfully divided by the number of total trades. This ratio greatly affects bottom line profits.
Net Profit – Earnings minus losses including expenses and other costs of doing business. At the end of the day, is your forex trading profitable?
Average Earnings – Very simply, what is the average pip profit for your trading wins?
Average Losses – How big is your average loss? Larger or smaller than your average win?
Worst Drawdown – How low did your account go (in percentage terms) before it clawed its way back?
Best Currencies – Which currencies have the best win to loss ratio? Total profitability? Could you stop trading one currency pair to focus on another better money maker?
Best Indicators – Were your best trades the result of carefully watching for head and shoulders patterns, or were you excellent at predicting the market reaction to a jobs report? Is one part of your system losing you money? Is one part of your system far more successful than another? Where could you best allocate resources to maximize your return on your time and investment capital?
Spreadsheets for Trade Journals
We created a system for keeping a forex trading journal on a spreadsheet. By typing out each trade with relevant information, you’ll be able to sort with different filter settings to find your best pairs to trade, times to trade, and what makes you the most money in forex trading.
Of course, we cannot hold your feet to the fire in terms of keeping a trading journal, no one can. So, with that in mind, we highly recommend that you keep a journal and trading plan, and would suggest that you carefully analyze it to keep on top of the markets. Successful traders learn from their decisions, good and bad. Be a good trader, and do your best to keep logs of your trading history.