No, as I said posting as a scratch gives me more information on plan performance and potential adjustment.
Use Breakeven Trades in your Data Collection
- Thread starter SimpleMeLike
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I don't put any value on win/loss ratio. Just like a retail store does not tally every single transaction and think in terms of win/loss ratio every time they ring up a purchase. Win/loss ratio has nothing to do with the bottom line, at least for swing traders anyway. I had one year where my loss ratio was horrible due to a flat whipsawing bear, yet at years end it was a great year. Had I focused on win/loss ratio chances are I would have aborted or changed my trading.
Commissions, taxes, data-feeds, software licenses and anything like that should be considered a "Business Expense" (even if you're not running a "business" as such). They are part of the core cost of trading (in general) rather than the cost of a trade itself.
The P&L on your trades or investments should be purely based on the trades themselves.
Just like any business, you have a bunch of core costs (e.g. rent) you need to pay for whatever happens. You need to pay the rent irrespective of whether or not your business is making money. Just like any business, the sales you make should cover both the core costs of doing business and leave you with profit at the end. Just like any business, the way you do this is by ensuring you have sufficient profit margin.
If a "winning" trade, becomes a "loosing" trade just because of commission charge, then quite frankly you've got a lousy "strategy" and you're risk:reward ratio is far too skewed in the direction of risk if your profit margin is so slim.
@SimpleMeLike
Speedo gave what I think is the best advice at least for stats collection. If your losses are normally 10 ticks or better and all the sudden you start counting scratches as very small losses it's going to influence your win% and risk reward ratio dramatically. Might be best to either do as speedo says OR track via profit factor.
Speedo gave what I think is the best advice at least for stats collection. If your losses are normally 10 ticks or better and all the sudden you start counting scratches as very small losses it's going to influence your win% and risk reward ratio dramatically. Might be best to either do as speedo says OR track via profit factor.
Thank you Algofy,
Appreciate all the opinions and logical reasoning from this post.
I agree with speedo here. Counting breakeven as a loss skewed my risk vs reward, and win% loss% for the number of trades I collected. Counting the breakeven will be subtracted from the total PL. The win and loss % will come from trades where the trade hit stop loss or hit profit target. For simplicity, this will give me a better idea of strategy actual win vs actual loss for now.
Since you seem to be very good about collecting stats, I have to wonder if you know how many trades that you close at BE would have actually hit the profit.
Here is the example. Suppose you use an 8 tick stop in the ES, and price goes down to -6, but comes back up to allow you a BE exit, so you get out at either 0 or +1. Perhaps you're happy that its not a loss, but how often would this trade have gone on to hit your profit? Suppose its a straight 1:1, so instead of taking the +1 tick, perhaps you could have gotten +8 ticks. Similarly, suppose that you use a 1:2, but you get out at +1, instead of waiting for the +16 ticks (4 points profit on the 2 point stop).
In my stats, I have seen many times where the trade would go down to -7 ticks, and then turn around, and go to full profit if I just left it alone, but of course, because I was down to begin with, I'm happy to just get out BE.
So saying all this, you have to wonder if that BE trade, which prevents a loss, is also perhaps preventing you from gaining a profit. If you think you're better at knowing when to get out for BE, more power to you, but it is a bit random in my opinion. I think just the fact that price came all the way back up to let you get out BE means that it might go even higher, but of course this is all dependent on where and how you enter. Your own stats should be guiding you, just something else to consider.
Likewise, if you're into profit all of a sudden, and move your stop up to BE too soon, and then you're taken out when price comes all the way back to you, how often does it then go back up again? That stop being moved to BE too soon might once again be preventing you from realizing profits.
Here is the example. Suppose you use an 8 tick stop in the ES, and price goes down to -6, but comes back up to allow you a BE exit, so you get out at either 0 or +1. Perhaps you're happy that its not a loss, but how often would this trade have gone on to hit your profit? Suppose its a straight 1:1, so instead of taking the +1 tick, perhaps you could have gotten +8 ticks. Similarly, suppose that you use a 1:2, but you get out at +1, instead of waiting for the +16 ticks (4 points profit on the 2 point stop).
In my stats, I have seen many times where the trade would go down to -7 ticks, and then turn around, and go to full profit if I just left it alone, but of course, because I was down to begin with, I'm happy to just get out BE.
So saying all this, you have to wonder if that BE trade, which prevents a loss, is also perhaps preventing you from gaining a profit. If you think you're better at knowing when to get out for BE, more power to you, but it is a bit random in my opinion. I think just the fact that price came all the way back up to let you get out BE means that it might go even higher, but of course this is all dependent on where and how you enter. Your own stats should be guiding you, just something else to consider.
Likewise, if you're into profit all of a sudden, and move your stop up to BE too soon, and then you're taken out when price comes all the way back to you, how often does it then go back up again? That stop being moved to BE too soon might once again be preventing you from realizing profits.
Thank you and great example and logical thoughts.
The breakeven concept is a challenging one. So I just keep it simple and pick +tick distance that I will bring my stop loss to breakeven to once this distance is hit. Then I simply wait for breakeven stop loss to be hit or profit target to be hit. If I enter and price goes the other negative way, i do nothing but wait for stop loss to hit. I Do Not get out of the trade if price comes from a negative then back to my entry. I simply wait for the profit target to be hit if trade initially starts off in the negative.
Regarding breakeven stats, i do collect stats on MAE and MFE per trade. As well as how far price went negatively before reversing in my favor for all losses and breakeven.
Thats interesting actually. I would assume that if price first went in my favor, but came back and I moved my stop to BE too soon, that this trade would more often lead to a profit. If at first the trade goes against me, but comes back, this might be when its best to get out BE. The way you're doing is nice in that now you have the so called risk free trade cause it either hits your BE stop or profit.
This is just for me of course though. I like to buy the lows at support lets say, so if it comes back down, which it can a few times before really taking off, then a BE trade would take me out too soon. On the other hand, if I buy support, and it falls through hard, but comes back up again, then who knows, it might just be a stop run and shoot back up, or it might head lower, so its still a random gamble, but the fact it broke that support to me shows the chances of it working now are less likely than if it didn't break support but just came back down to it again.
MAE and MFE are great, but the worst thing about them is that it only tracks the position while the trade was open, and not what would have happened. What I mean by this is that if you take that BE trade, perhaps it shows you that at one point you had an MFE of 4 ticks before getting out BE, but these stats will never show you how often it goes on to hit your target before hitting your stop. I wish there was some sort of backtesting software that did this for actual trades taken, but I don't think so. I'm not so much concerned about what happens during the trade that I took while it was on, but rather, what would have happened if I just left the trade alone to hit different combinations of stop and target.
I am not fond of scratch trades but they keep me out of more losses than they do gains. You can drive yourself crazy trying to optimize. A trade plan should be profitable and suitable to your temperament....no such thing as perfect trade plan.