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Losing To Win: 3 Reasons I Focus On Average Loss

From Seeking Alpha Source


  • While index bench marking can be a valuable tool for comparing personal performance with the market over time, it only depicts relative performance against an index like the S&P 500.

  • The higher the ratio of total gains to total losses, the greater the “velocity” of capital accumulation.

  • The gain/loss ratio provides a historical look at realized risk (historical losses) and realized reward (historical gains).

Today’s world is driven by data analytics, not just by big business and marketing firms, but by our own demand in our daily lives, from workout stats and footsteps, to resting heart rates and sleep quality. As a self-directed trader, I crave the same analytical ability to analyze and take ownership of my own habits and ultimate performance. However, for a long time I struggled to glean meaningful and actionable feedback from the two traditional sources of measuring performance: overwhelming amounts of individual transaction data, or a single point of comparison from index bench marking.

While index bench marking can be a valuable tool for comparing personal performance with the market over a specific time, it only depicts relative performance against an index like the S&P 500. As an active trader, I’m more interested in tracking my own absolute performance: How am I progressing toward my own goals and targets, and what, specifically, can I do to positively impact my results?

Over the past several years, I’ve discovered ways to convert my own aggregated realized gain/loss data into insightful and actionable feedback. Below, I share some of this feedback and how I’ve used it to consistently exert more control over my trade results.

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