The Blog Entry that Accompanies this Vlog is at: investorandtrader.blogspot.com My Daily Blog is at: investorandtrader.blogspot.com My channel at BlogTV is: www.blogtv.com Ok. We’ve got the previous money management principles down. Now we just want to jump into using them to trade the Forex, the Stock Market, to Day Trade with, or to use in the Commodity Futures arena. Not so fast. How do we take everything we’ve discussed thusfar in regards to Money Management Principles, and putting them in an easy to read format? We discuss that in thisvideo . . . NOTE: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research and risk tolerance. Included Music is by Paul Young. A personal friend and is not a part of any music license, recording label, etc
Glen
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Maureen
But I’ll tell ya, I see how the mistake happens, so now I also includes the “Average Loss” as part of the statistics that I use in my Excel spreadsheet
Jerry
Just ran across this comment …
No, my average loss was not $240.00. My average Loss or Risk was listed as my largest intra-trade drawdown at $86.00. Not the difference between largest drawdown, average dradown, and consecutive trades. Even with the largest public intra-trade drawdown of $86.00 – that isn’t the average loss.
Hope this helps, as I’ve had many, many more public trades since this time, and it’s hard to remember from years back …
Clara
Hi again. Listen, I don’t mean to be a stickler about the metrics but please clear this point up for me:
If the Accuracy Rate was ~74% or ~17 winning trades out of 23 with Average Reward being ~$221, then that would mean ~6 lossing trades with Average Risk of ~$240 to equate to a 1:2.6 Risk Reward ratio.
Thanks!
Marcia
I like your presentation style. I just want to comment though.
1) I don’t think Largest Intra-Day Drawdown factors into the final metrics and really matters.
2) I calculated your Average Risk/Loss which is necessary for the Risk/Reward ratio, but why isn’t the Average Drawdown equal to the Average Loss. Typically drawdown would refer to a negative equity curve or losses.
3) Please redefine drawdown in the context of your performance analysis.
Thanks very much for sharing!
Nathan
haha sweet thanks for clearing that up.
Charles
Let me watch the video (hard for me to remember, as my numbers have changed since I did this video)
Ah, I see the number that’s missing. The average loss can be different from the largest drawdown, because it’s the LARGEST drawdown. Not all of the drawdown, nor my average losses. My bad. A bit of data missing.
My average losses was around, like $89.00 per unit on the public trades if I remember. SO it’s something like 89 / 220 or so
Joy
Thanks for that. I am going to sound really dumb but when i do that calculation 31.24 / 220.99 i am not getting anywhere close to 1:2.6 i get a reading of 0.142 in the calculator.
help? haha thanks!
Valerie
Heyya mate,
First, thanks for the kind comments.
Average loss / average reward.
Hope that helps. Drawdown will differ in some areas, as some of the trades aren’t completed, but I had to undergo the drawdown inside the trade.
Daniel
Hi Dan,
Your videos are really helpful and i am also starting to read some of your recommended books. I am still confused as to how you are calculating the risk:reward ratio. Are you dividing your average drawdown with your average reward? or are you dividing your average reward by your largest intra trade drawdown?
Thanks.
Joe
Well … thank you! :^)
Terminology isn’t as important as the concept.
As long as the Risk (Losses) is 1, and your Reward (Wins) is 2 or more, then you’d be fine.
Ida
Just a question to clarify my doubts .
When I study entries strategies Risk/Rewards ratio is referred to the potential risk to potential rewars before you enter the trade , you use the term for something I would like to think more in term of Wins to losses ratio. Am I wrong?
BTW I discovered your site today and it is really great, I will subscribe and keep tract …thanks a lot.
Darlene
Hi Mom, you’re more than welcome, and thank you for the kind comments.
The “Risk” side of the risk reward ratio is taking what I’ve lost, on losing trades. So take all the losses, and what is my average, actual, realized loss.
The “Reward” side of the ratio, is the profits I’ve won, on profitable trades.
Then you divide the two, to reach what the average ratio is.
I hope this helps!
Regards,
Dan
Eva
Hi Dan,
Thank you for your excellent videos, I’m learning a lot from you.
I’m not quite grasping the way you’re calculating Risk:Reward ratio in regards to Performance Analysis, can you spell it out for me?
What values are used to calculate it?
Thanks,
Mom
Billy
I’m going to talk about this a bit more on the BlogTV show in a few hours.
1) Cluelessness. I’ve been reviewing headlines at the time they were released. It’s laughable.
2) The Government trying to play merchant, in denial of everything that Adam Smith talked about.
Rosa
I know that market is not trading on fundamentals but trading on the news and speculation .Yesterday all the news was bad and market ended up being much higher .
This stinks . How do u explain it ?
Randy
yay they’re all down now. but i can’t buy or sell now. maybe you can’t day trade in the competition.
Clara
Yeah, I am rather ecclectic in my dress, to say the very least. I love that hat. My wife wants me to pitch it, but it’s just getting good. All tore to pieces.
Not bad if that’s on 4 trades. Have you checked out the charting series, or looked into technical analysis much?
Frederick
And remember, for my public trades, I keep my my risk to the $89 region right? It usually ends up being less than that. Ford trade was $57. CRBC ended up being $56. That pulled down the average quite a bit on those trades where the loss was about $86.51. So strange as it is, when I averaged those numbers all together, it lowered the average to the same as my largest loss; and thus the risk / reward turned out to 1 risk to 2.6 reward.
Edwin
I’m glad to see that you’re really looking at the numbers and seeing how they relate to one another. But stop & think for a moment. Is drawdown realized loss, or unrealized loss? Unrealized right? Ive had drawdown where the trade turned around, & I ended out with a profit (For example, last years Hog trade). Whereas my reward is a realized gain.
Yeah, the 1 to 2.6 didn’t seem right to myself either, but I did the math four different ways, including by hand, but it does turn out, to 1 to 2.6.
Melvin
Continued-
Also, are you sure your numbers are right? On average you make over 7 times the difference between your entry point and stop loss placement? Are you sure that shouldn’t be “largest reward,” not “average reward” on the screen in your video?
Shouldn’t one have both numbers- average reward and largest reward- in their analysis?
Have a great day
Tek
Terry
Hi Dan. I watch your vids in the middle of the night when I can’t sleep. It’s 2:20am here right now, so forgive me if I am not thinking this out right lol
As I watch your risk reward ratio, it seems like something is wrong. Shouldn’t it be a ratio of average drawdown to average reward? (in your case 30.42/220.99 or 1 to 7.26)
I get 1 to 2.6 if I divide your largest drawdown by the average reward.
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Sally
WOAH what’s up with that hat? you go from 3 piece suit to chenney hunting cap?
so i’m doing the wallstreet survivor challenge. and i’ve just been tracking like 20 stocks for the past month. and every day they’ve been down. so finally i decided to take the plunge.
i shorted: aapl; wmt; bp; and nue. they’ve been the biggest losers and the move volatile so far. today i lost on every single one. so the market rallied on me and … yeah. i’m only down 7.5% but still
Rebecca
FIRST