Saturday, January 31, 2015

An Exercise to Evaluate Your Trading

Here's a worthwhile exercise I recently discussed with a trader.

Select a measure of market trending, such as a X-period Sharpe ratio for the market.  Divide the last couple of years into bullish trending, non-trending, and bearish trending periods.

Select a measure of market volatility, such as VIX.  Divide the last couple of years into low, medium, and high volatility.

Compute your cumulative profit/loss during the bull, non-trending, and bearish periods.

Compute your cumulative profit/loss during the low, medium, and high volatility periods.

Where are your sweet spots?

Where do you lose money?

When should you be stepping up your game?

When should you be stepping back from markets?

Where is your happy zone?

Further Reading:  Finding Your Trading Strike Zone
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