TOTAL Return | DEC11 UP 50.06%!
Return: Profit/Start of Year Cash Balance=$25,031/$50,000 = UP 50.06%.
Key Performance Metrics ...
Win/Loss Probability = 65/119 = 54.62%.
Average Win/Average Loss= $614/$276= $2.23 Won per $1 Loss.
Performance Ratio = (Win/Loss Probability) x (Average Win/Average Loss) = 54.62% x $2.23 = 1.22.
Positive Expectancy = (Win Probability x Average Win) - (Loss Probability x Average Loss) = (54.62% x $614) - (45.38% x $276)= $210 per trade.
NO trade adjustments needed.
2011 Portfolio is updated every month end, in the Cry–Me–a–Trade™ section, trades are cried out weekly as they are filled.
Results can vary, though these are reasonable expected outcomes of applying the Home Options Trading Process. It's only sensible to state upfront the measured outcomes expected from the methods applied. Begin knowing the end.
Making the edge consistent in your portfolio distils down to 2 cornerstone measures:
❑ Number of Winners EXCEEDS Losers = Above a 50/50 Win:Loss Probability.
❑ Average $ Value of Wins EXCEEDS Average $ Value of Losses.
Positive expectancy of the Home Options Trading process has much to do with diversifying the risk in the portfolio to an acceptable level of non-correlation across asset classes; plus, stringent trade selection grounded in robust analysis of volatility and probability.
Consistency will remain elusive without improving your Win:Loss Probability. It is a measure of your accuracy in trade selection. The habit that needs to be reversed is looking for potential trades with increasingly higher ROIs, as your Win:Loss Probability deteriorates. Often, what initially appears as a higher ROI opportunity once filled, turns into an even lower probability trade, making it increasingly difficult to manage the trade for profit as a winner. No surprise that ROI is inversely related to probability, which warrants specific treatment of the impact of volatility on probability.
Average $ Value per Win : Average $ Value per Loss is a function of discipline around money management. It measures your responsiveness in controlling losses and your willingness to accept each loss to move past it, on to the next trade.
Combining the measures of Accuracy and Responsiveness, you get the Performance Ratio: (Win / Loss Probability) x (Average Win / Average Loss). This is an overall measure of portfolio efficiency.
❑ Sustaining the Performance Ratio above 1.00 is key in increasing the capital allocation per trade by 1%; but, still complying with the money management rule to stay within 2%–5% per trade. It is what creates the progressive clustering of the profits from the mid–hundreds to the higher–hundreds into the thousands, that you see in the portfolio. How do you step up profits consistently?
Even without calculating the numbers, here are the characteristics of consistency in the Portfolio that you should see in the P/L of your own trading account:
❑ The Largest Loser should not wipe out the Largest Winner. There should be progressively many more larger Winners above the value of the Largest Loser.
❑ Profits should cluster progressively from the low to mid, mid to high hundreds, higher hundreds moving steadily into the thousands, instead of swinging from the low hundreds directly into the thousands. By analogy, physical ladders are built with equal sized steps apart. While you can get to the top by skipping steps, a misstep hurts most when you fall all the way down, without the courage to step up to the first step again. Erratic swings are often symptomatic of over–allocation (forming an unreliable habit of dependancy) on gapping strategies or excessive plays on earnings with single stock exposure. Profitability Concentration fails to guard the portfolio against the risk of ruin.
Self–directed trading means configuring your own portfolio and independently evaluating your individual trading tendencies. Trade towards your tendencies that have been identified as strengths. Do not trade counter–intuitively simply because some "advanced" course or trading buddy tells you otherwise.
Ignore the "experts with secrets". Stop paying high fees to marketing machines, hoping they will magically reveal their "secrets" – NONE. More often than not, they just worked out something ahead of you. They were simply before you, in terms of "time in the business". Define your own methods. Credit yourself for the achievements and hold yourself accountable for the mistakes that you know – only you – can change.