The Concept Of Official Trade Stats
One of the questions we get here at PowerEmini.com is… “what are the Official Trade Stats for the Power Momentum Breakout System?” (i.e. Points Gained/Lost or ROI from the trade alerts) It is important to understand that there are many variables that can affect the outcome of your final trade results once you act on any type of signal alert. Just like a Rubik’s cube… if you change just one variable – it can have wide reaching consequences and influence other variables. What this means is that since most traders are NOT going to identically replicate every detail of every trade (or with the same number of contracts, or with the same reactionary speed), there will always be a wide disparity in the end result – trade stats for individual traders – even though following the same signals.
Factors That Can Influence Final Trade Results
Lets take a look at some of the reasons why there cannot really be an “Official Trade Stats” that attempts to show points gained/lost for a group of traders – even when following the same signals.
For Example – Here is the Trade Alert: Go LONG at 2050.75
Next we have to ask…
-How many contracts do you trade with? (Position Size)
-Is your position size variable or static for every trade?
-Do you scale into positions gradually or lump sum all your contracts with a single entry?.
-Do you use market orders or limit orders?
-Do you use a time filter rule before entering a trade? (On all of your trades, some of your trades, none of your trades?)
-Do you get filled on every entry or miss some of the entries?
-Where do you place your initial stop? (Wide stops or tight stops?)
-Do you place your stop-loss at the same price for all contracts or split the position up and use stops at different levels?
(if so what is the contract ratio?)
-Do you scale out of your trades at intermediate targets or attempt to hold everything to full targets?
-If the trade moves in your favor, at what point do you move your stop to Break Even?
-Do you trail your stop behind price.. if so how do you determine the distance?
-If you get to break even and get wiggled out.. do you attempt to get back in the trade?
-If you take a full stop out and on a price spike, are you willing to re-enter the trade if it still looks valid? How many times are you willing to re-enter?
-Do you adhere to a “Max-Drawdown Level” where you quit trading at a specific number of daily points lost? (If so, how many points?)
-Do you trade every day of the week, or only on certain days due to work related restrictions?
-Do you trade the entire session, or only portions, for example the first 3 hours or final 2 hours into the close?
-Do you have a Daily Profit Goal, i.e. – stopping point.. for example +5 points and you quit to lock in the gains?
-Do you use any kind of progression strategy in your trade sizes?
-Do you trade with a small account of $3k or larger account of $50k? (which can influence your emotional response to drawdowns)
-What ratio of trades are you scalping quick targets vs. holding your positions for bigger runners?
After All Is Said And Done…
I think you can see now why it is next to impossible to “Officialize” Trading Stats or ROI based on Trading Signals that are used by a large group of traders at different levels… there are simply too many variables to contend with. For this reason, attempting to gauge Trading Signal Performance by forcing everyone into the same cookie-cutter trade management style, on every single trade, (as some attempt to do), does not really reflect the reality of the trading process nor can it accurately reflect the ROI that you yourself may potentially achieve following system signals. After all is said and done, every trader will simply end up with his or her own personal trading stats. But that doesn’t answer the question.. how good are the System Signal Alerts?
A Better Way To Gauge Alert Stats and System Performance
A simple and effective way to measure the accuracy of any Trading Signal is to plot the amount of Positive vs. Negative tick movement experienced AFTER a Trade Alert is issued.
The above “heat-map” is designed to show the “Raw Performance” for a Trade Alert in an impartial and non-subjective way. In Trade Example A you will notice that after the trade alert was issued, that price only moved 2 ticks in your favor before reversing and incurring -2.50 points of negative tick traction, most likely going right through your initial wide stop-loss. This is an example of a bad trade entry with little follow-through. Trade B on the other hand only experiences 2 ticks of negative traction or “draw-down” before moving in your favor positive 2.50 points. This is an example of a winning trade entry with little draw-down and lots of positive tick traction. The purple vertical line with the green dot represents the point for reaching “Delta-Neutral” or a break-even, no-lose configuration.