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losses your system has experienced whilst remaining profitable. You need to know this simply because the statistic will boost your confidence during times when you think you need to quit.

Imagine that you have experienced five to six losses in one day. If you don’t know how your system works, and how many wins you’ve had, then you might think it’s all going down the tubes. In all honesty, your historical data might say that you’ve experienced ten losses but are still generating profit.

5. Then you have the maximum drawdown, which is basically the worst performance of your system. It doesn’t matter whether or not the drawdown consists of consecutive negatives.

You will find that the statistic is calculated automatically, therefore all you need to do is determine whether or not you are actually comfortable with the size of the losses. If you are not comfortable, then you will need to change up the system in such a way that you are comfortable with it.

Once again, this all has to do with that risk-to-reward ratio. The greater the risk, the more reward you are going to reap in the end. There was a time that I traded a system which returned with 140% p.a. It’s great in theory, however it also had a max drawdown of 80%. Whether or not you can handle losing that kind of capital is really up to you.

Make sure that you are comfortable with the system you choose to trade with.

6. Number of trades Then there’s the number of trades a system gives over the course of a year. I find this an invaluable, yet rarely talked about, statistic.

Your trading system should not give too many or too few trades. The number of trades that a trading system gives should be approximately the same as that which can realistically be taken.

The two sides of the coin are equally dangerous. If a system gives too many trades, you will be forced to choose between signals, therefore adding ambiguity to the system. With ambiguity comes human discretion and this often has a detrimental effect on the performance of the trading system.

On the other hand, if a system gives too few trades, your trading capital will not be fully utilised and you may not be taking full advantage of the available trading opportunities.

So how do you calculate the optimal number of trades for a trading system?

This is done with the calculation called ‘opportunity’. Opportunity helps determine your optimal opportunity for a trading system.

7.Then you have Profitability, which is the number of returns on an annual basis.

Let’s not beat around the bush. This is all about making money, and the one important thing here is profitability. While you’re trying to make money, just make sure that you maintain a balance. The previous six items in this article will help you immensely with any questions about your stock trading system. Watch below for more trading information

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