I received from many an interesting question I’d like to share with you:
Why, when I develop a strategy, I especially focus on the variation of the Average Trade? 

The focus of my analysis is on four key performance indicators: Net profit, Average Trade, Maximum Drawdown, and Periodical Analysis.

During each step of the development, the Average Trade is always the first parameter I look at to see if I’m headed in the right direction. If you aren’t aware, the Average Trade is simply the sum of total profits divided by the total number of trades.

The goal I try to achieve is its capacity. With capacity I mean the minimum required Average Trade to use trading system real-time, having a sufficiently soft cushion to mitigate the effect of any decays of performance or adverse situations.

This minimum value required is based on the market, the type of strategy and the tick size.

I’ll explain myself.

Working with a contract on a “small” market like Corn requires less capital exposure with respect to a much larger market as the DAX Future. This different exposure is also reflected in the minimum value of Average Trade needed.

Similarly, trading an intraday strategy that closes the positions at the end of the day doesn’t require the same Average Trade of an overnight strategy that keeps my position open for more than one day.

The minimum Tick is also an aspect which is not very often taken into account, but try to think of the different impact that a €10 tick slippage has on Eurostoxx50 w.r.t. a €12.50 tick slippage on Dax which is a market 4-5 times larger than the former.

Hence, the Average Trade must always be related to the risk taken, which is given by the capital exposed through the purchase of that particular contract (not just the margin), the time the position remains open, and the slippage.



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