Sunday, 25 March 2018

Accuracy

Lot of traders often inquire for accuracy of my stock future trades.  They normally believe that if accuracy of the trades is high, then there is a high likelihood of making profits.  Else with low accuracy they will never make money from trading.  In short, they see their chance of making money with only highly accurate trading system with the accuracy of 70% or 90% or even greater than that. If you also believe in high accuracy means higher profits, this post will be an eye opener for you.

Lets first try to understand what the accuracy is.  Accuracy is nothing but a measurement of profit making trades out of total number of trades.  As an example, if 6 trades make profit and 4 trades make loss out of total 10 trades, the accuracy would be 60% for these 10 trades.  Now as a trader we cannot use this accuracy figure in isolation as a measurement for overall profitability from trading.  We also need to take into consideration risk reward ratio along with the accuracy.  Combining them both, risk reward plus accuracy, will give us a clear picture of overall profitability of trading system.

Lets try to understand this further with this example.  For 10 trades, if the trading system makes profit of Rs. 1000 each in 8 trades and loss of Rs. 5000 per trade in remaining 2 trades, the accuracy of this trading system will be 80% because 8 trades out of 10 trades make money here.  However, due to poor risk reward ratio of 5:1 (it loses 5 times more whenever it makes loss), at the end of 10 trades, this 80% accurate system will give us loss of Rs. 2000.  +1000*8 = +8000 profit.  -5000*2 = -10000 loss.  So the end result in 10 trades is 8000-10000 = -2000.

Now lets just flip everything here, accuracy as well as risk reward ratio.  A trading system with 20% accuracy and 1:5 risk reward ratio.  8 trades will make a loss of Rs. 1000 each and 2 trades will make profit of Rs. 5000 each.  Hence the overall result with this 20% accurate system will be Rs. 2000 of profit.
-1000*8 = -8000 loss.  5000*2 = +10000 profit.  So the end result is -8000+10000 = +2000.

So with the above example, it is very clear now that to judge the overall profitability from a trading system, we need to look at accuracy as well as risk reward ratio.

In my stock future trading over the last one year (total 310 trades), I have been able to achieve 60% plus accuracy with 1:2 risk to reward ratio which has helped me remain consistently profitable throughout the year.  Below are the links of performance reports of last one year for you to check out accuracy and risk reward ratio.  In these reports, I have been very honest in recording each and every trade setup that was shared with other traders, leaving no stone untouched to truly represent the end result. All who traded with me or are trading currently always appreciated this fact.

Jan 2018 to March 2018

April 2017 to Dec 2017

If you are interested in trading, you can join my trading group and trade with me in stock futures like this in morning session.  If you want to learn how to spot high probability trade setups for trading so that you can trade independently on your own, I will teach you that too.  Please mail me to charttechnicals@gmail.com for more details.



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