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Ray,
Good points in your reply as to refinement of looking at trading efficiency.
Think i will incorporate your ideas into my evaluation method.
Thanks.
Terry
Ray wrote:
I throughly agree about the importance of self evaluation. I am
wondering if there is some way to account for the fact that no security
moves in a straight line. For example your trade:
closing price 5/15 price LIQUIDATION
EFFECTIVENESS
JMED 29 3/4 30 3/4 -1
Supose the day after you sold JMED dropped 3 points and you where
stopped out at a loss. Then it slowly, over the 2 weeks climbed back to
30 3/4. The fact that you sold when you did would have far more "value"
than holding 2 weeks for 1 point.
Perhaps a way to account for this would be to do something like
the following: First select a time period that matches the average
length you hold a position, in this example 2 weeks. Find the low of
that period and subtract it from whare you sold (in this example 29.75 -
26.75 = 3). Do the same for the high (30.74 - 29.75 =1). Using your
sign convention of + for low and - for high, combine the two(3 - 1 = +2)
This trade was quite good since it avoided a potential big loss.
Likewise if JMED jumped 5 points the day after you sold and then
drifted back down to 30.75 over two weeks the score would be calculated
as follows: 34.75 - 29.75 = 5 for the high and 29.75 - 29.75 = 0 for
the low. Combining the two you get -5 Not a good trade because by
holding 1 day you could have gained 5 points. If JMED had traded below
29.75 during the two weeks you would use the low in your calculations
and that would improve the score in this example.
Next you could factor in your actuall gains or losses by simply
adding the points gained and subtracting the points lost from the above
calculations. Say you had a gain of 2.5 points when you sold in each
example. Then the first would be 3 - 1 + 2.5 = +4.5 and the second
would be 0 - 5 + 2.5 = -2.5 Finally you could draw a chart of these
numbers, not to show off your gains but to help minimize the losses.
This and a good notebook of your trades and the movement of the security
during the 2 week evaluation period could be a usefull tool in
evaluating your trading.
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