A trader\'s money management system

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c12 JWBK182-McDowell April 25, 2008 16:15 Printer: Yet to come

Using Trade Posting Cards and Ledgers 103

In the following sections of this chapter, we will review the ledgers and

cards working from the macro level (the annual trade ledger) down to the

micro level (each individual trade posting card).

ANNUAL TRADE LEDGER EXAMPLE

This is the ultimate scorecard that in a glance tells you the entire story of

your year. In my student’s example, he is paper trading with an account

size of $25,000.

Annual Trade Ledger for 2007,

50.7 Percent Gain

The information we gain from the annual trade ledger (see Figure12.1) and

the account size of $25,000, we can determine these twelve vital statistics

for the year:

1.Win ratio: 39% wins

2.Payoff ratio: $1.96 win to $1.00 loss

3.Commission ratio: 25% of gross profits go to commission

4.Largest winning trade: $2,814.14

5.Largest losing trade: ($621.72)

6.Average winning trade: $559.50

7.Average losing trade: ($285.59)

8.Largest number of consecutive losses: 7

9.Average number of consecutive losses: 4

10.Largest trading account % drawdown: 12%

11.Average trading account % drawdown: 6%

12.Annualized profit/loss on trading account: 50.7% profit

The annual ledger gives you a lot of valuable information to help you

focus on trading system issues, as well as money management issues. Let’s

do a quick analysis of what we have learned from this annual trade ledger:

 November was the most profitable month.


 June had a dramatic drawdown.


 Annual net profitable return on investment was 50.7 percent.


 Commissions eat up 25 percent of gross profits.


 Payoff ratio is $1.96 wins to each $1.00 loss.