A trader\'s money management system

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c11 JWBK182-McDowell April 25, 2008 16:14 Printer: Yet to come

Tracking Profit and Loss Results and More Formulas for Success 95

RECORD KEEPING IS THE RX FOR

SUCCESS

Record keeping is the prescription for success. This is where you will be the

doctor that will collect vital statistics, analyze those statistics and determine

the prognosis, and then prescribe the necessary medicine for getting healthy.

DETERMINE YOUR CURRENT TRADING

VITAL STATISTICS

Have you ever noticed that when you go to the doctor or hospital, the

nurses are constantly taking your “vitals”? With good reason, because that

is the only way they can determine what will be the best prescription and

diagnosis for better health. Here are the vital statistics you will need to

track going forward:

 Win ratio


 Payoff ratio


 Commission ratio


 Largest winning trade


 Largest losing trade


 Average winning trade


 Average losing trade


 Largest number of consecutive losses


 Average number of consecutive losses


 Largest trading account percent of drawdown


 Average trading account percent of drawdown

These statistics will give you the historical data to adjust your money

management system and occasionally adjust your trading system to adapt

to ever-fluctuating market conditions. In the next chapter, you will learn

how to track these statistics using The Trader’s Assistant record keeping

system.

MEDICAL VITAL STATISTICS HELP WITH

DIAGNOSIS

Doctors and nurses are in the business of collecting vital statistics every day,

and there is much to be learned from this. For them, it is second nature, just as

it should be for traders.