Day Trading For Dummies, 4th Edition

Chapter 13

Determining Your Profit and Your Profit Potential

IN THIS CHAPTER

Testing before you trade

Tracking while you trade

Evaluating performance after the trade

Any one trade involves a lot of variables: price bought, price sold, commissions charged, volume traded, and amount of leverage used. And each of these affects your overall performance. In the heat of a trading day, it can be hard to juggle all these factors and determine just how well you did or didn’t do. And yet, you can’t trade by the seat of your pants, at least not if you want to stay in the game for the long haul.

Performance calculation starts before you trade. You want to test your strategies and see whether they work for you, which requires backtesting and paper trading. You want to keep track of your trades in real time with the help of a trading diary. And then, on a periodic basis (at least monthly), you should review your progress to see how much money you’re making and whether you need to change your strategy.

Before You Trade: Testing Your System

Performance measurement starts before the trading does. That’s because you want to figure out how you’ll trade before you start working with real money. ...