- 9 Most Important Economic Indicators for Forex Trader
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- Top 12 Forex Strategy Metrics That Every Trader Must Know
- What are Forex indicators?
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9 Most Important Economic Indicators for Forex Trader
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Views Read Edit View history. Help Learn to edit Community portal Recent changes Upload file. Profit and loss results for a trading plan can vary considerably when using different time frames and comparing strategies. For example, a short term range trading strategy would be significantly different than a longer term trend trading strategy when it comes to assessing and comparing trading metrics. Trading metrics fall into two basic categories that have different uses for a forex trader wishing to measure the operational performance and overall success of their trading business.
The first category consists of operational metrics that measure the performance of the trader themselves and the operational functionality of their equipment.
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Several examples of this type of metric might include the number of trading errors made, the average trade identification and response time, and the number and duration of Internet outages during trading hours that might adversely impact trading activities. These metrics can be useful to determine what sort of operational changes need to be made by a trader.
The second category consists of trading strategy or trading system metrics that generally measure the financial success of the trading business and the strategy it employs. Assessing these metrics seems essential for a trader to determine whether a particular trading strategy should continue to be used. Forex metrics play a significant role for traders that have developed a trading plan and use statistical analysis to determine how to improve their trading skills and practices.
In addition to discretionary and systematic traders who trade for their own account, other financial professionals regularly use trading metrics to assess performance. In this case, they would review the pertinent statistics of any trader that they are considering or presently copying the transactions of.
25 Digital Marketing KPIs You Should Be Monitoring | WebFX
By analyzing the trading results of the copied trader, the social trader can get a better idea on the criteria used by a successful trader to determine entry and exit points in the market. Risk managers for large trading organizations are another group of financial professionals that employ metrics to assess the risk profiles of traders that they supervise.
Large clearing companies and financial institutions with large dealing desks use risk managers to determine the level of risk taken by traders operating at their firms who are using its capital and credit lines with the goal of generating extra profits. People generally focus on certain metrics more than others. For example, the all-important bottom line or net profit is generally the first statistic considered. Nevertheless, achieving the net profit requires the exercise of various trading practices, such as average time length of a trade, which constitutes another metric.
When considering net profitability, the time frame in which the net profit was made and the amount of capital used to make that profit are of considerable importance. Percentage of Winning Trades — this metric is usually the first statistic considered after the net profit. The percentage win rate is derived by dividing the number of profitable trades by the total number of trades, which gives the win percentage.
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Percentage of Losing Trades — much like percentage win trades, the percentage of trades showing a loss are the number of losing trades divided by the total amount of trades. The percentage of winning vs losing trades can be very important in assessing money management rules used in the account.
Top 12 Forex Strategy Metrics That Every Trader Must Know
Largest Winning Trade — this refers to the biggest winner a trader had, which can carry a lot of weight for an account if the amount of the winning trade is a large percentage of the net profit. Largest Losing Trade — this metric indicates the level of risk that the trader allowed the account to be exposed to. This metric is extremely important when considering a trader to copy, for a social trader, and for hiring a trader, in the case of a fund or bank. Average Winning Trade — the average winning trade is derived by adding up the sum amount of all winning trades and dividing this number by the number of winning trades.
What are Forex indicators?
Average Losing Trade — the average losing trade is calculated by adding up the sum of all losses and dividing this amount by the number of losing trades. Holding Time — the amount of time that a trader holds a position determines whether they are a short-term, medium-term or long term-trader. Depending on the type of trader, the time a trade is held can be an important metric.
The average holding time for a scalper for example could be less than a minute, while a long-term trader might hold a position for several months. The average holding time is calculated by dividing the total holding time for all trades by the number of trades.
Winning Trade holding time versus Losing Trade holding time — this metric can indicate whether the trader is holding losing trades too long or cutting out profits by exiting winning trades too soon. Holding on to losing trades for long periods ties up capital that can be used better elsewhere. Maximum Drawdown — this very important metric shows the reduction of capital in the account after a string of losing trades.
Worst Losing Streak — this stat shows the most consecutive losing trades made in the account. This metric can be somewhat deceptive, in that if the losing streak was for many small monetary losses, it could indicate a sound money management strategy. Trade Expectancy — this refers to the average amount expected to be made or lost on each trade.
The trading expectancy is calculated by multiplying the loss percentage by the average loss and subtracting the amount from the win percentage multiplied by the average win. Basically, interpreting forex metrics like those listed above can be the key to improving your trading skills.
Once a trading system has been evaluated over a period of three months and then tested in a live account for a similar time frame, the trader then probably has enough statistical information to see where there can be room for improvement. Of course, one of the main reasons for using forex metrics is to develop a sound trading plan.
Without a trading plan, a forex trader can be compared to a traveler without a compass or a map.