Key Indicators of the Trading System Effectiveness

Key Indicators of the Trading System Effectiveness

Sooner or later, any newcomer to the fix api forex market understands that in trading success accompanies only the system trading. A situation, in which a trader right away builds a profitable trading system is practically impossible – systematic and well-planned work is needed to check various options of the system to improve it and the trading indicators. In the course of this work, it is necessary to compare various trading systems or their parameters among themselves and choose the most adapted one to the particular market conditions. Such a comparison requires an assessment of objective indicators of the trading system effectiveness in the forex market (http://forexrobotsreview.us/2017/09/13/trading-performance-monitoring-websites-whats-their-purpose/ ).

As such indicators, traders can use absolute or relative profitability of the trading system, loss, drawdown and other parameters. In this article I will reveal them in details using the fix api MT4 trading terminal, which is the most common trading platform for the fix api forex brokers.

The MT4 trading terminal has a powerful built-in tool for evaluating the parameters of strategies – the strategy tester. After the trader selected an expert advisor in his terminal, he determined the method and the testing period, launched the process and got the result on the tab of the “Report” tester, statistics of the trading strategy test process available to him. This statistics contains the key indicators of the trading system effectiveness, which we will consider now in more details.

The first group of indicators – the traders in the forex market take the first group of indicators of the trading strategy effectiveness to make a profit:

  1. Total profit or Gross Profit is a sum of all profitable trades in the trading strategy for the testing period.
  2. Total loss or Gross Loss is the sum of the result of all losing trades in the trading strategy for the testing period.
  3. Net profit or Total Net Profit is the difference between total profit and total loss.

The second group of performance – these are indicators of trading strategy drawdown during the testing:

  1. Absolute Drawdown is an indicator that determines how much the trading balance has fallen during the testing period relative to the initial value;
  2. Maximal Drawdown is an indicator that determines the maximum drawdown recorded during the testing phase of the fix api trader‘s trading strategy. The size of this indicator can be higher than the absolute drawdown, showing the size of the probable loss, even if the trading strategy shows a positive result;
  3. Relative Drawdown is an indicator of maximum drawdown to the initial size of the trader’s trading account, expressed in percentage.

The third group of performance indicators are indicators of the quantity and quality of trade transactions and relative indicators. This group includes:

  1. The profitability factor of the trading system or Profit Factor is the ratio of the total profit to the total loss in the testing phase;
  2. The total number of trading transactions or Total Trades is an indicator that determines how much the trader in the forex market can trust the test results. It is believed that the more transactions the system has accomplished, the more reliable the test results;
  3. The total number of profitable trades or Profit Trades is an indicator that expresses the percentage of the total number of profitable trades;
  4. The total number of losing trades or Loss Trades.

And as a conclusion, I would like to note that this list of key indicators of the trading system effectiveness is far from complete – everyone can get acquainted with it by downloading the MT4 terminal from the forex broker’s website to his computer. After the end of the testing phase, you should carefully approach the analysis of the results – if the tester has transactions whose trading parameters differ sharply from others, then such transactions must be excluded from the calculation of indicators. In addition, the indicators of the trading strategy will always differ in real work from the results of the tester, since the tester does not take into account the entire uncertainty of the fix api forex market.

 

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