If you’ve begun to input your trades into the Trade Log, you’re ready to ask yourself the next question: What should I be doing to evaluate my strategy and improve? The following are some suggestions we hope you find helpful:
Do you trade more than one strategy?
If you trade more than one strategy, begin by sorting your trades by which strategy you used for each trade. You can then go to the Summary page and see at a glance which strategies are performing best for you, and which may be lagging. (Turn on the Strategy parameter for summary in the settings tab if you don’t see it).
Does your strategy have more than one entry trigger?
An entry trigger tells you: ‘Yes it’s time to pull the trigger now’. If you have different reasons or setups for entering a trade, go back and look at each trade and use a parameter to note which was the most dominant reason you entered the trade. Then you can compare them and eliminate weak triggers and give greater strength to the most-winning ones.
Here’s an example: Say you sometimes enter a trade if you see a break of a support/resistance level, and other times you only enter if you see the level broken > retested > and broken again. Set up each of those as an option within your entry trigger parameters and compare the results.
Are you using the right stop loss?
Are you using an appropriate stop loss for your strategy. (Don’t assume that the people who taught you the strategy will answer this question as well as you can answer it for yourself.) Go back over your winning trades and measure how far price went against you after you entered the trade. Enter this in the parameter called STOP NEEDED. Also enter the value you actually used in STOP USED. Now go to the Analysis page of the Trade Log and set up a new analysis preset report. You can do a sort by clicking on the top header row. Look for the greatest value of stop needed and see if you can trim your stop.[We recently did a test run over 2 years on a strategy we use. It called for a stop that varied from 30-180 pips, depending on circumstances. In our Trade Log though, we did this and found that no winning trade needed more than an 85 pip stop. By reducing the stop loss to 85 max, we could then use a larger position size on those trades, and thus see greater profit. ]
Do you use variable size stops? How does each perform for you?
If you have variable stop sizes (perhaps based on technicals), you can create a new custom parameter STOP SIZE USED, and set it up as an option parameter. Then create 10 pip brackets each as an option: 10-19, 20-29, 30-29, 40-49, etc. and sort each trade into its correct option. Then you can see a table within the summary page for the wins and losses within each bracket. [On the test run we mention above, we did this and then quickly saw that if we needed more than a 150 pip stop, we had less than a 50% chance of the trade working. This would be hard to detect without the help of the Log].
Are you trading at the right time of day? Are you trading the right pairs?
Of course look at the hours of the day and see if any times for entry are overall negative for your strategy. Do this too with different currency pairs you trade. Maybe one strategy is suited to some pairs, but not others.
Does the week of the month influence your profit?
Set up a parameter for WEEK OF THE MONTH (using options like 1st, 2nd, 3rd or 4th, last). Even an approximate classification can reveal very interesting information. There are some strategies we personally use that the Trade Log revealed to us were very much more profitable in the first week of the month and very much less profitable in the last week of the month. See if your strategy is subject to fluctuations like this.
Does the Average Daily Range (ADR) influence your strategy?
Is your strategy influenced by how much of the daily range a pair has put in? If you think it might be, set up two parameters called AVERAGE ADR (ADR means Average Daily Range) and another called ADR AT TIME OF TRADE, and note this info down as you take each trade. Alternatively – or additionally – the best would be to set up an option custom parameter called PERCENT OF ADR, and again create brackets: 0-49% / 50-59% / 60-69% / 70-79% / 80-89% / 90-100% / 101-119% / 120-150% / more than 150%. Place each trade into the appropriate bracket and then compare them easily on the Summary tab. You may be surprised to find that your strategy yields the best results when the ADR is 60-80% fulfilled, or whatever the facts may reveal to you. This will also help you quickly see what situations to avoid trading in.
Do you trade multiple time frames? Do you really know which is most profitable?
Do you have a strategy you trade on different time frames? Maybe you see your setup on a 5 minute chart and go for 10-15 pips each time you do, but you also take the trade when you see your setup on an hour chart, and go for more pips. Set up a custom parameter for TIME FRAME and list each as an option (5m / 15m / 30m/ h1, h4, daily). Then you can easily see which is the most overall profitable for you to trade.
Thoughts from one of our power users…
We ask many of our users how they actually use the Trade Log and one of our best answers came from Brendan Martin, who we have gotten to know because he told us how much the Trade Log has helped his own trading. We’ve seen screenshots of how he set up his Forex Smart Tools Trade Log and he is truly a power user. He has put his thoughts together on this question, and given us permission to share them with everyone:
“Well there are a lot of things that I personally consider to be important as to whether a strategy works.
Firstly I consider whether it is a strategy that I have made myself or if it is one that I have procured off someone else. If it’s from someone else, I look at what it involves and find out if it will work “for me”. It’s no use having a profitable strategy that just doesn’t work in your head for some reason. You won’t be confident taking the trades and inevitably you will struggle.
Assuming it passes this first check, I would then break the strategy down into parts,. What is involved? Fibs? Pivots? MA’s? Support and Resistance? Oscillators? From there I would look at what custom parameters I could include in the Smart Tools so that after my testing I could look for any improvements or “tweaks”. Maybe it works certain days of the week better than others? Maybe certain times of the month? Maybe only certain currency pairs work with it?
There is nothing worse than blindly going through trade after trade not realizing what is working and what is not. I have been guilty of this in the past. I don’t do this anymore!
I would then look at how best to test the strategy and over what period to determine if its profitable. For this I would use a demo account and Forex tester. For the tester I would also try different currency pairs and different times of the year.
After running these tests, I would analyze the results in the oh so wonderful Smart Tools (-: I would look for any improvements I could make to it, make a note of those changes and then run further tests with those changes. Has that improved the results or not? What is my maximum drawdown? Am I comfortable with that? What periods does the strategy seem to work best? Trending? Range-bound?
I like to have some post trade grading as well. For example, how aggressive was I with the trade? Did I consider the time in the trade appropriate? How closely did I follow the strategy? If not why not? I also give the trade an overall grade. This allows me to look objectively as to whether a losing period is actually due to the strategy or my just not following it!
I do all this in the Smart Tools using Analysis and the Summary view. Drawdown can be easily seen using the new graph functions.
If “non-compliance” is the issue, I need to look at why I am not following it. Is it because I’m not comfortable with some aspect of it? If so, can I change that and test again?
Assuming I am happy with the results on the Forex Tester (and on any demo trades I had taken), I would start to trade it live. I would start trading small, maybe 1/3 size normal position and monitor my results closely over a period of time. This could be a week or a month depending on the amount of trades I would likely take (You won’t get many daily trades in a month but you’re likely to take a lot if your trade is a 5 minute scalping technique!).
I like to go in smaller size wise so that the “oh my God I’m trading real money with this” is less of a problem and I can concentrate on trading the strategy well rather than making money.
I would analyze this data and look at the results. I would be critical of myself here, making sure that I was following the strategy and that nothing had changed from testing and demo trading regardless of whether the period was profitable or not. I want to make sure that I am following my rules as I have found that although it shouldn’t be any different, when real money is involved, you can make silly decisions, taking profit too early, jamming stops etc.
If I find problems (win or lose) then I would strongly consider if I wanted to take it back on the Forex Tester or demo trading again to iron out any issues I had found.
Assuming I have found no major issues and I am still feeling good about the system, I would raise my position size maybe to 1/2 my risk tolerance, then monitor again, raising my position to full size if no issues occur.
It doesn’t stop there though. Every week I look back on my trades and evaluate how my strategies are performing using the Smart Tools. I then write a journal of my thoughts and feelings, as well as publish stuff to my blog.
I don’t like to think of a strategy as a static thing but as an evolutionary process, which through calculated change can be made better and improved over time. The important thing is that it is “calculated”. Any changes are made through rigorous and comprehensive testing to ensure I am not “fixing something that isn’t broken”. Those changes can be tested alongside working the strategy in live too, again either on demo or the Forex Tester but ideally both.
I’m a strong believer in that you never stop improving. With a burning desire, patience and a positive attitude, any obstacle can be overcome, no matter how tough it might seem!”