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Benchmarking Your Trading Method & Adult Education

I don't like to generalize, but most people don't like doing homework. I see this all the time as a trading instructor. But, every now and again I am pleasantly surprised.

Today I was lecturing on the importance of keeping track of all the trade signals a method produces in a spreadsheet. I was explaining the many benefits of this exercise - #1 seeing the win/loss ratio, #2 seeing the draw-downs, #3 seeing the best times to trade, #4 having a benchmark to compare your own performance to, etc. -- and at the same time chiding the room because so few of them actually take the time and effort to keep a tally of the trades in this format.

Then Laurent, who lives in Paris, spoke up that he keeps such a spreadsheet for the day-trading method and is very happy with his performance. Voila!

(click to enlarge)Click to enlarge
Figure 1. Laurent's Benchmark (GMT-2) - hypothetical results

The thing to remember is the benchmark spreadsheet is hypothetical because it is unlikely anyone could stay awake 24 hours per day and take every trade, nor is it likely that the majority of people would execute according to their plan. Students are notorious for exiting too early. The reasons for benchmarking the method you choose to use are innumerable. The reason why you would not? Generally only one: you are afraid to actually see those results - which is in itself a major component of why adults don't like homework, because they did not score as well as they liked.

The bottom line is it is far better to learn ahead of time those crucial statistics that a benchmark spreadsheet will provide, rather than trade it with your hard earned money first!

To see Jay Norris highlight trade set-ups and signals in live markets on Mondays & Thu's go to: Live Market Analysis. Jay is the author of "The Secret to Trading: Risk Tolerance Threshold Theory".

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