Trading as a business: turbo-charge your trading system

Hi, Brian McAvoy here with Inside Out Trading. On YouTube, I'm known as Trader Brian. And finally, I know it's been a while continuing with how to treat your trading as a business. What we're going to talk about today is really important. This is how to put your trading system on steroids or kick it into turbo. In your trading business, your system is your machine. I like using analogies manufacturing because that's where I worked for years as quality engineer. And one of the things that we focused on there was process control and continuous improvement. I mean, that was how money was made. I mean, big time, the quality effort is tremendously profitable for those who pursue it. That's part of why I share these things with you, is the quality aspects. Now, what we're looking at today is the continuous improvement cycle. First thing you have to do with any process and your trading is a process. Any activity that's repeated on a regular basis, it is a process or you have a process for it. And that's what your trading system hopefully provides is some clarity to your process and some order. Now, the way to really make substantial improvements to your trading system is to first of all measure it and measure certain aspects of it. The next thing that you want to do is you want to monitor it over time and use that feedback, the measurements that you get over time or through back testing. So that's one of the cool things about trading is you can back test it. You can take your system and run it through historical data, real data, and see what its performance aspects are. You can back test it, or you can forward test it. If you want to take your system and maybe just trade it in a demo account or trade it with money, the choice is yours. You probably already have some data, but anyway, you want to analyze it and look for certain aspects of it, not just is it making you money or not. With any process, there are certain aspects that are going to control the overall output of your process. And so what you want to do is focus on those aspects. Now, some of the aspects that you want to focus on would be such things as your winning percentage, your profitability overall. Well, not your profitability, but your profit to loss ratio. Specifically, what your average win is, what your average loss is, what your risk reward is on an average basis and with real numbers. Not what you think you're doing going into the trades, but actually what your real data shows. What did you really risk on those trades and how much did you really make on them? So these are the kind of things that you want to measure. And again, if you do this over time or again, you can back test your system and you can take that information and then you can go into the continuous improvement cycle. You take that feedback, you put that back into the process and say, all right, well, if I make a change to my system or if I want to adopt a new system, you can run the numbers on them and compare the two and see which is better. Now, if you think about making a change to your system, see, this is where it gets really good. Say you get your system or you run the numbers on your system and you find out what your metrics are and you see that maybe they're satisfactory and you just want to make improvements to your system. The best way to do this without losing money, this is how you stay money ahead all the time. If your system's working and it's making money for you, what you want to do is you make whatever change, add an indicator, change timing, whatever change you're looking at making. You take that system with the change and treat it as a separate system. And then you run the numbers on it, like I said, through back testing or forward testing in a demo account. And this way you're not risking any money to find out if this is going to be profitable for you, if it's better than what you're doing now. If you do this on a regular basis and you can make incremental improvements to your system's performance, well, you can make huge improvements over time. I mean, if you're like once a month or maybe twice a month, taking a look at your numbers and making slight changes here and there, maybe some of them are more profitable. So you go with those. Now that becomes your control. You look at a change and that's not as profitable. Great. You didn't risk any money on it because you're doing it in back testing or in a demo account. Cool. You stuck with what was making you money. Well, by the end of the year, you can see substantial improvements, 10, 20, sometimes even 50, or if you really depending on where you are now, you can double your profitability in a very controlled, controlled manner and a very low risk manner. But you do it through a very measured and calculated way. And that's running your metrics and looking at the specific performance aspects of your trading. As far as your business goes, that's one of the beauties of trading, is that you can do this. Trading is the only business in the world that I know of where you don't have customers. It's you and the markets so you can test things with your real environment, your real circumstances, and see if something works. Any other business involves customers, so you can't just test it in a simulation and see if it's going to work or not. But with trading, you can. So you can try things and see if they're going to work without risking money. And that's cool because you're testing your business system, your business model, your trading system. To me, they're kind of synonymous. So if you follow this, first thing you want to do is you measure the critical aspects of your trading system and its performance and then you track those and then you take that information and you feed that back into your process. And then you can make continuous improvements because you're doing it based on real measured data that controls the profitability of your system. And you don't rely on trial and error with real money or just guesswork. You can do it in a very confident and certain manner because you're doing it in a measured fashion. Now, if you'd like to find out more about this, you can come by insideouttrading.com TPA and I talk about this some more. But this is really how to take your trading system and really kick it into turbo. Put. I mean, just put it on steroids. You can make massive improvements to both your trading performance and your trading system performance and your consistency, because once you start measuring it and you see what's what as far as your various metrics, it will help you tremendously as far as the consistency of your system. So again, Brian McAvoy with Inside Out Trading. This is part of the series on trading as a business. I do encourage you to watch all the videos that are here on YouTube. Anyway, Brian McAvoy with Insideouttrading.com or on YouTube, I'm known as Trader Brian. Cheers.