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.Your currentbelief system indicates that you have not fully developed your tradingpsychology and the trader s mindset.Again, as with items A5 and A6,it is probably best for you to bite the bullet, stick with your currentsystem for now, and just do it! Just start record keeping and give it anopportunity to prove that it has merit.I hope this list of questions and answers about possible hesitations toincorporating a solid record keeping system will spark some thought inyour mind as to how to proceed.Ultimately, you will be better off with aregular record keeping system.I urge you to confront whatever resistanceyou may have so that you can start benefiting from this plan now.P1: PIC/b P2: c/d QC: e/f T1: gc11 JWBK182-McDowell April 25, 2008 16:14 Printer: Yet to comeTracking Profit and Loss Results and More Formulas for Success 95RECORD KEEPI NG I S THE RX FORSUCCESSRecord keeping is the prescription for success.This is where you will be thedoctor that will collect vital statistics, analyze those statistics and determinethe prognosis, and then prescribe the necessary medicine for getting healthy.DETERMINE YOUR CURRENT TRADINGVITAL STATISTICSHave you ever noticed that when you go to the doctor or hospital, thenurses are constantly taking your  vitals ? With good reason, because thatis the only way they can determine what will be the best prescription anddiagnosis for better health.Here are the vital statistics you will need totrack going forward:Win ratioPayoff ratioCommission ratioLargest winning tradeLargest losing tradeAverage winning tradeAverage losing tradeLargest number of consecutive lossesAverage number of consecutive lossesLargest trading account percent of drawdownAverage trading account percent of drawdownThese statistics will give you the historical data to adjust your moneymanagement system and occasionally adjust your trading system to adaptto ever-fluctuating market conditions.In the next chapter, you will learnhow to track these statistics using The Trader s Assistant record keepingsystem.MEDI CAL V I TAL STATI STI CS HELP WI THDI AGNOSI SDoctors and nurses are in the business of collecting vital statistics every day,and there is much to be learned from this.For them, it is second nature, just asit should be for traders.P1: PIC/b P2: c/d QC: e/f T1: gc11 JWBK182-McDowell April 25, 2008 16:14 Printer: Yet to come96 A TRADER S MONEY MANAGEMENT SYSTEMAs an analogy we can look at our trading vitals in the same way that a doctorlooks at our medical vitals.As an illustration, let s list some vital statistics thatare commonly used in medicine:1.Blood pressure2.Weight and height3.Temperature4.Medical history5.Oxygen level in the blood6.Cholesterol7.Current symptoms8.Family medical history9.Age10.Surgical historyMany of these medical vitals are similar to our trading vitals.For example,your trading history can help predict your future trading patterns.Your trad-ing temperature is a quick barometer to let you know if your current tradingtemperature is normal are you 98.6?Your current trading symptoms will help you determine what to prescribe.If your payoff ratio is high but your percent of wins to losses is low, you knowthat you want to prescribe a plan to increase your wins to losses.This is valuableanalysis, and it will be instrumental in boosting your profits.FORMULAS FOR SUCCESSThe three important vital statistic ratios you will need to calculate are:1.Win ratio2.Payoff ratio3.Commission ratioThese ratios tell you your current standing on a variety of levels andwill give you guidance on how to move forward.Use the following formulasto calculate your vital statistics.P1: PIC/b P2: c/d QC: e/f T1: gc11 JWBK182-McDowell April 25, 2008 16:14 Printer: Yet to comeTracking Profit and Loss Results and More Formulas for Success 97WIN RATIO FORMULAThis is the percent of winning trades to losing trades.The more winningtrades you have, the better, although in trading you will never have 100percent winning trades.This ratio may fluctuate day to day, and it is impor-tant for you to constantly observe the ratio to determine if there has beena market cycle change or to determine if you are experiencing a normaldrawdown.When your win ratio is low, there is the possibility of pilot error, orbasically, human error.Determine what might be causing the human errorissue fatigue, poor psychology, and so on so that you can address thesituation and make the necessary adjustments.Formula:Win ratio = Number of winning trades ÷ Total number of tradesTo get a percentage, multiply the ratio by 100.Example:60% = 60 ÷ 100PAYOFF RATIO FORMULAThis is the ratio that tells you how many dollars you earn for every dollaryou lose.The higher your payoff ratio, the better.If you are consistentlyearning $3 for every $1 you lose (3 to 1), you can be proud of yourself.Ifyou are earning $1 for every $1 you lose, you are breaking even and you willneed to determine how to improve this ratio.Very often, a sound moneymanagement system will enable you to improve this ratio [ Pobierz caÅ‚ość w formacie PDF ]