Being my first post I thought I would add my views about what I look for in a trading record of a trader. There are quite a few strategies that are worthy of following here whilst others, well let’s just say, I scratch my head as to how they attract subscribers. Trade leaders/strategies on here seem to be a dime a dozen, but a paying subscriber can only get burnt so much before they leave. I hope the following helps those potential subscribers navigate the murky waters and increase the probability of finding a strategy worthy to follow. So where do I begin? Well in my experience, the most important factor in a trader is their psychology and this is well expressed in their trading records; it’s amazing what it can reveal, you just have to know what to look for. Strategy descriptions, written promises, backtest results don’t mean anything if the trader (especially a discretionary trader) has no emotional control over their trading. A few things to look out for:
- Win/Loss ratio. If you see strategies with win/loss above 80%, in my experience, that is usually indicative of a trader that doesn’t like to lose or can’t handle losses. This means they trade scared when winning and are hopeful when losing. Chances are you will see a lopsided Avg Win and Avg Loss in favour of losses because of this. No one has a crystal ball, and a trader expecting themselves to make 8 out of 10 trades right day in and day out is putting too much weight on one’s shoulders and makes them prone to mistakes. I prefer to see Avg win be a multiple of the Avg loss for this very reason. Only getting 4 out of 10 trades right with a 3:1 win:loss ratio means you are still ahead. Remember, you can win forever you just can’t lose forever.
- Trade size and frequency. Look at the history of their trading ESPECIALLY when they make a loss. How do they take it? Do they trade bigger? Do they trade more frequently? This may indicate a trader that has changed their mindset and isn’t trading based on a signal but trading to recoup losses which is a red flag. Do they seem to trade to make a certain amount of $ or % each day/week/month? There are no guarantees in life and the markets are no different. You take whatever the market gives you and if you don’t hit your predetermined amount, will that make one trade more, hold losses longer, trade bigger positions? Trading history reveals all. Sometimes the best trade is no trade at all.
- Use of stop losses. Traders that I have seen make money all employed stops. Why? Not just for the fact that it protects your capital and is that line in the sand where you can say “I got it wrong”, but it also gives a sense of risk:reward which successful traders have a good idea about. Also, risking $1 to make 20c means 1 loss wipes out the profit of 5 winning trades, and just say those 5 trades represented a week’s profit, that’s a chip on the trader’s shoulder that he/she will wear come Monday. Stops keep you in the game and traders that don’t employ them are asking for trouble. This may be represented in large DDs seen here, but again, the trading record tells all.
That’s just a few of the many things I have come across in my time managing a broker’s desk. For the experienced on here, it’s probably a rehash of what you know already, but for the uninitiated in this game seeking to dip their toes into the murky waters, I hope the above serves as a guide. The above is just my opinion and by no means advice.
