Dissecting Your P/L

P/L is the ultimate indication of how a trader performed on a given day. Assuming you had at least one losing trade in the day, daily P/L is the amount of profit - the amount of loss in the day. Monthly P/L is the amount of profit in the month - the amount of loss in the month.

We should be most concerned with the negative P/L. If we're able to decrease our negative P/L, our profit will naturally increase. So identifying and knowing as much as possible about our negative P/L and where it comes from is very important. If we know where our negative P/L came from in the past, going forward, we can avoid similar situations and thus avoid a probable loss.

Here's an example of how one number can be split up and disected so we can learn more about it...






Above is the cumulative P/L value for every trade made in 2007. The two main values that make up this number are positive P/L and negative PL(Win PL and Loss PL). It's useful to split P/L by these values so we can see our net winning amount and our net losing amount.


So now we see where that number came from, at least immediately. I made $692,822.50 in profit, but gave it all back and then some in losses, which were -$736,860.00 . The end result is a net loss of -$44,037.50 . Okay, fine. Well, this is relatively basic information that still doesn't tell me much.

Here we see the average P/L per trade in 2007 (-$5.34) . My average profit on my winning trades is $84.00 and my avergae loss on my losing trades is -$89.34.

Let's focus on this -$89.34 value. This value is formed by many other values. For one, it takes an average of every single losing trade. We could take each individual losing trade and group them together in numerous ways.

We could group the trades by the individual days on which they occured, the day of week on which they occured, the hour of day on which they occured, the month in which they occured, the year in which they occured, the side of the market (long, short) on which they occured, the size of the trade (in terms of shares or contracts) on which they occured, etc...

The point of breaking this number down into groups is to see where the greatest differences lie. Where does most of the negative value occur? Under what circumstances do the largest losses occur?

Using the example above, we might split this average loss P/L value up and look at it in a few different ways.

We could break it down by the Hour of Day on which it occured...

Or the side of the market on which it occured...

Or both the hour of day and the side of market on which it occured...

These are various roads I could go down when asking questions about this P/L. The first chart shows me the size if my average loser next to the size of my average winner, per hour of day. Are there certain hours when my average losing trades are larger than my average winning trades? If so, I might consider looking into this in more detail to discover the reason. I might apply different measures to those hours and look for differences in performance and in certain aspects of my trading, all of which I'll address on the coming posts.

© Copyright 2007 David Adler
All rights reserved

All analysis generated with the TraderDNA Analyzer.