Evaluating your Strategy – Counterintuitive Results

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In the last article on strategic valuation, we talked about some proportions you can use to get a better handle on your business and how it works.

You don’t have to use each ratio separately, but it’s also possible to combine them and play them with each other, as you do with indicators in your business.

One of the more useful things a report analysis of your business can discover is counterintuitive results; when things you expect to happen don’t happen.

This is why it is important to go through the “control” part of your business strategy and review performance. You may be doing everything right, but the result is not what you expected

Following a good strategy does not always lead to a good result.

Let’s consider a simple scenario: you find a successful business strategy. You see your account balance growing, clearly, the strategy is working, and you start trading that strategy and using that combination of indicators as much as possible.

It works, doesn’t it? So why, after a while, do you realize that you’re not earning that much money, or worse, that your account balance is starting to decline?

This is one of the counterintuitive scenarios that can occur when trading that you will need to use your valuation ratios to find out – or, ideally, first prevent it from happening.

It doesn’t seem logical, so it won’t be something you’d expect to happen unless you track your business and your business results, and then review them with some statistical analysis.

How does that happen?

Several things could happen, and there are different diagnostic tools we can use to find out for sure.

First, we need to know that it is tied to trading frequency, and not just a coincidence of the market. So, you need to keep a record of your trading frequency, and a record of your trading profit; then note that as your frequency increases, your profitability does not go as far as possible.

If you cut your trading frequency, and you realize that the situation is resolving, you know you might want to look at why increased frequency messes with your trading mojo.

One of the simplest explanations for this phenomenon is that when you traded less often, you chose the best possible trades, i.e. the most likely to result in a positive outcome. So, as you increased the number of trades, you have to have to take some that were more risky, and in the long run, more of those essentials didn’t work. You can see this if while your frequency has increased, your profit ratio when down, for example.

A variation of that situation could be that in order to take more trades, you traded longer, coming out of a certain window where the strategy was optimal. For example, if it is a strategy that relies on market volatility, you may have had excellent results in the LONG time period, but the effectiveness of the strategy decreases while the volatility decreases in the subsequent US session. This is why keeping track not only of your trades, but of the time you traded is beneficial.

Calculate your path to profits

You couldn’t identify these problems if you didn’t apply cold, hard math to the issue – a more impetuous trader might have chosen to increase trading even more because he knows the strategy works, he just needs to get more. pips to make money. That would put the problem together.

You can preventively use this technique during a retest, for example, to determine what the optimal trading frequency is for your strategy. It may be that as you increase your frequency, your profitability increases as you underestimate your strategy.

This seems intuitive; but at a certain point, the profitability might turn around, and to find the right point, you have to apply the proportions we have discussed.

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