Whether you’re a newbie or seasoned veteran in the forex arena, there are several common metrics that we all know we should be tracking. Such as support and resistance levels, pay-off ratios or lows and of course, profits and losses. There are many more but let’s look at 5 lesser tracked but equally critical metrics that could change the game for you:
1) Hold duration
Do you hold your long positions for a few days or are you comfortable with intraday trades? How long you hold a trade can reveal your appetite for risk. Short-term traders will exit at the first sign of a dip while traders who keep their position for more than a day jump in with a fairly good idea of what to expect from a pair. Then, there are position traders who may hold on to a currency for months or even years.
Keeping a journal of your holding duration will help you to understand your risk profile. This information can then be used to frame a suitable trading strategy that sits well with your risk level, earning goals and trading style.
2) Hold duration part 2 – Hold durations of wins vs. losses
Once you have information about your trading style, it is time to take the analysis one step further. Now, you need to analyse your trades in terms winners vs. losers.
For instance, if you find that the average duration in which you held onto a winning trade was longer than a losing trade, this would be a good indication that you are holding on longer than you should, and you should exercise more discipline when it comes to losing trades. However, if you are sticking with your strategy and still finding the duration of losses higher than your wins, then it might mean that you are closing your winning trades too early.
Ideally, your strategy should be designed such that you get the most out of your gains and limit your losses. So, what you should see when doing this comparison is a higher hold duration on wins vs. losses.
3) The times of your trading sessions
Still on the topic of time, another important metric to take note of is the session in which you get most of your winning trades. This is something that many traders overlook as they often adopt a trade-whenever-I-have-time mentality.
For example, you are living in Hong Kong and want to trade yen pairs, so the opening of the Japanese markets offers a convenient trading time for you, but in reality you find that you make most of your money in the London session after Japanese markets have closed. This may be because there is less volatility outside of Japanese hours, which makes it easier for you to execute your particular strategies.
This goes to show that it may be worth the effort to stay up in front of your computer for a few more hours, to be able to trade in a more favourable sessions.
4) Market conditions: Ranging vs. breakouts
Monitoring this aspect of your trading behaviour will help you to learn about the optimal trading conditions for you. With this metric you will be able to find out if you have been making money by following market trends, or waiting to find tops and bottoms.
For example, if you find that most of your wins come in ranging conditions, this may indicate that you trade with support and resistance levels in mind. On the other hand, if you find that you have been making money on breakouts, it may mean that your trading decisions are made based on news and momentum setups.
5) Trade sizes
The fifth metric that you should be tracking is the size of your position in every trade. This will help you to understand the optimal position size that you start with and how you react to market trends vis-à-vis changing the size of the positions. For example, if you see that you increase the size of your holdings when you see a strong trend, this is a positive sign. Conversely, you also need to reach swiftly to choppy markets by scaling down your positions and not leaving them as they are.
At the end of the day, whether you choose to adopt all five metrics, just a single one or none at all is entirely your prerogative. However, in any case, it is crucial to maintain a detailed FX trading journal. Often, the difference between an average trader and a super trader boils down to the effort that you put into improving your trading style and strategy.
You must be diligent and honest about maintaining your forex trading journal. At the end of each week, you should have a clear idea of all the trades made with all the relevant metrics recorded down for each. You may also want to create a summary report at a fixed time every week or month, so it becomes simpler to analyse the data collected.