The Proper Way of Gauging Your Trading Success

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At times, we tend to be too subjective about who is successful and who is not in the stock trading business. The reality is that most of us are still confused. How do we know if our strategy is good or bad?

Knowing When You’re Losing Money

For some of us, it’s as simple as this: if we’re making tons of money, then we’re doing good — maybe even great! On the other hand, if we’re losing money then it’s the other way around.

For us to understand further, we can gauge success based on our last ten closed trades.

Success Is a Formula

No matter how much we try, chances are that we cannot win every trade. Even the best traders don’t always have a 100% chance of winning. However, despite this, we can create a formula for our success.

While being able to win the trade is our goal, losing is not always that bad, especially if we are going to learn a thing or two from it. Part of it is learning to strategize and use more techniques.

Metrics of Winning Trades

While losing is inevitable, we can definitely find ways to lessen this and make winning more on our side. When we lose a trade, it’s better to identify what caused the loss and how we can avoid it next time.

This is where strategies come in. Learning to use a set of rules can definitely increase our chances of winning.

As mentioned earlier, winning all the time may not be something we can expect. However, if we set a certain percentage (like 70 and 30) for our losses and wins for every ten trades that we do, then at least we know how much we’re losing and vice versa.

Similarly, a business won’t always succeed. There will be moments where our businesses won’t be that profitable. However, this doesn’t mean that we have to give up.

It’s Like Running a Business

While some of us may not have owned a business before, others definitely understand the aspects that we have to consider when running one. We have to consider the following:

  • Mortgage
  • Rent      
  • Utilities
  • Cost of goods   
  • Taxes 
  • Employee salaries
  • Health insurance

For others, there are added costs of running a business. We’ll know if we’re profiting when our earnings are more than our business expenses.

In the same way, we can tell that our trading is a success when we’re gaining more than losing our money. 

When To Change Strategy

Good fate isn’t always on our side. Some will experience several losses before winning a trade. If we give up easily on the first two loss trades, think that what we’re doing is wrong and that we’re never going to win, then we have the wrong understanding of success and failure.

Success does not mean that we win all the time. On the other hand, if we notice that the same result has been consistently occurring, such as we keep on losing trade after trade, then maybe there really is a need for us to change our strategy.

Losing Money

Success does not always equate with winning. For instance, let’s say we won 9 out of the 10 trades that we did.

This may sound like a great success. However, when the one loss we have is tantamount to more than the 9 wins that we experienced, then it’s still a loss.

Despite winning more, the amount lost is still greater, and we can still end up losing money.

Risk Management Issues

With all the losses that occur, it’s very important that we know how to manage our risk.

It’s not all the time that we win. There are times that we win six out of ten trades, while other times it’s four out of ten trades.

If we understand how to allocate our funds and use them wisely, then we are not going to lose all of our money.

How Do We Judge Success or Failure With the Strategy?

By looking at our last ten trades, we can understand if we’re consistent with our strategies. While losing is something that we cannot avoid, taking a look at our previous trades will definitely help us understand which strategies are effective and which ones are not.

Keep in mind, though, that changing your strategies every day will surely make you more confused and will not help you focus.

For example, if being a day trader is more convenient, then be a day trader, or give a timeframe for it before deciding to switch to being a swing trader. Don’t use different strategies all at once as it will make you more confused.

Testing Strategies

If we’re not confident enough that we can succeed right away with a live account, using a demo account to prove if our strategies or techniques are effective is much better.

We can use this demo account to implement at least ten trades to give us a better idea of how much we may win or lose with a particular strategy.

Being successful in the field of trading does not come overnight. It’s a learning process. Even if we only have a few bucks in the wallet, we can make it grow by being disciplined and following a set of rules.

Ready To Trade Better?

Every one of us here has gone through the same dilemma. But, if we keep on learning, then we can grow our portfolios.

If you want even more information, or to learn about Futures Trading Education, don’t forget to subscribe to our newsletter.

Josh Martinez
About the author

Joshua Martinez is an elite Analyst who's been actively trading the financial markets since 2011. He’s known as one the leading innovative traders in this industry due to his his cutting-edge strategies. Josh first burst into the scene when he took an initial deposit investment of $500 and turned into over $39,000 in just under 2 years. Joshua’s trading articles have been featured in Your Trading Edge, The FX Street, Trader Planet, Forex Crunch, Trading Pub, and Equities.com. In addition to trading, Joshua has also trained thousands of traders worldwide. His strategies and systems have helped others find success in the market

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