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Last Updated: Mar 26, 2008 - 2:27:02 AM |
Part one- What Are Trade-Metrics?
“Know thy self.”
As traders, it can feel as if there is simply too much to be aware of in order to live up to those words. We see the wisdom in doing so; however making beneficial application is complex. Some may reason that, “the money is in capturing moves, not applying some old adage”. Now, while quickly rebuffing with “the money is in the moves not some adage” may seem sound, would a more tangible type of confidence better foster expertise? A confidence borne from knowledge of our real-time, real-dollar choices and their outcomes, rather than the false confidence that can result from reflex answers? To come to know the value of trade-metrics, first we will consider their composition and preview their many uses.
Trade-Metric Composition: Like a math problem where inputs are needed in order to produce an answer, so it is with trade-metrics. Here, one or more input is measured against another. Some metrics call for measuring data vs. data, while others measure data vs. market condition. The answers to these varied inputs are usually averaged over time.
Examples of trade-data inputs are: Did I buy or sell? What was my trade frequency and contract quantity per trade? How long did I hold the trade? Was it profitable, flat, or a loss? While answering these questions can in a broad sense, heighten awareness of our trading selves, it is the measuring of this data against specific trade-condition inputs that can bring our strengths and weaknesses sharply into focus. An example of a trade-condition input is: Were my trades placed in an up or down-trending market?
Use of Trade-Metrics: For instance, by tabulating both our long and short entries, including their quantities, against the back-drop of up-trending sessions we can make use of a penetrating trade-metric. Will the answer give us something tangible upon which we can build lasting confidence and expertise? At a glance, it shows what our bias was within the period measured. It shows how well we adapted to what the market communicated. Additionally, by noting our quantities on both the buy and sell-side, we are able to see if we are maximizing our profitability per market conditions or if our preference for either the buy or sell-side is being placed ahead of trading in accordance with market conditions, which is inherently problematic.
Has the use of this tool helped us “know thy self”? Yes! By using just one trade-metric, our dominant tendencies, as well as, advisable times to trade bigger, smaller or sit out altogether became forcefully evident nearly simultaneously! “Which ones are most helpful?” and much more will be answered next week in part two entitled: Key Daily Trade-Metrics.
© Copyright 2008 by Trading Concepts, Inc.
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