What Statistics Are Important in Forex?

When you are testing a Forex system or method, you are testing it to see if it can provide consistent, repeatable profits. The only way for you to see this objectively is through statistical evidence. There is a tendency for new traders to assume that there is one all important statistic which they should work on, but this isn’t a re`listic way of going about developing a system that works. Many people think that if they create a Forex system with a high win percentage, for example, they will be profitable. But what if your losses are all huge and your wins are tiny? You might still have a losing system.

The best approach is to cultivate a number of Forex statistics which provide you with important information about your trading. Well-gathered statistical evidence will not only demonstrate to you whether a system is profitable, but give you information which you can use to improve that system. Here are some important statistics to focus on during your Forex backtests and demo tests.

• Win/loss ratio (or win percentage). Obviously you want to get a high percentage of wins and a low percentage of losses. This is one of the most important things you can aim for, but as mentioned already, it isn’t everything.
• Size of wins and losses. You want larger wins and smaller losses if possible.
• Net pips. How many pips have you made, total, over the course of the Forex test?
• Number of breakeven Forex trades. How many trades did you break even on? The reason this is important to calculate is because you will usually lose a little money on breakeven trades since you must still pay the spread for the trade. You will need to add up the costs of your breakeven trades and subtract that cost from your net profit. It can be significant if you have a lot of breakeven trades.
• Worst losing streak. How many losses in a row did you incur during your worst losing streak?
• Average number of winning trades per day/week/month/year. If you’re eventually going to trade for a living you need to get some feel for how much money your system might actually make you in a given real life time period.
• Number of winning/losing trades for various types of Forex trades. If your method involves multiple entry methods, tally up data on every single one of them. You may also want to take notes on context. You may discover a price pattern or indicator which works great in one context works poorly in another. You can then make the adjustment to your next test.
• SOL Quotient. This term comes from well known Forex trader Rob Booker. Your SOL Quotient = your net profit/maximum loss. The resulting number is how many of your worst losing trades you’d be able to withstand in a row before blowing your net profit. Naturally you want this to be a large number.

You can profit with any one of these statistics being poor — if the others make up for it. There is no one golden statistic which determines statistics — but taken together these statistics can help you to succeed at Forex. If you are using MetaTrader platform to backtest or demo test your trading strategy, you can then use a report analysis tool to get all these important statistics.

If you want to share your opinion on the importance of various FX trading statistics, please use the commentary form below to post it.

Introduction to MetaTrader 4

The MetaTrader 4 is possibly the most recognized and efficient home broker trading application nowadays on the market. It is free and available for download from the MetaQuotes Software Corporation website, the producer of MetaTrader 4. If your broker offers the possibility of having MT4 as your main trading platform, it will be likely to provide a download link directly when you sign up for your trading account. Even if many brokers have their own platforms, MT4 it is still a powerful and reliable tool for Forex, stock, and commodity traders. If your broker doesn’t support MT4, you can freely access real data from several servers on MT4, the currency pair rates differ a bit from MT4 servers and your broker, but it is not something that will significantly affect your trading performance.

Once you have successfully downloaded and installed the MT4 software, launch it. It may seem a bit complex for beginners, but all the information is very clear and divided by windows that allow you to control all your orders and a different number of pairs simultaneously. From the Market Watch feature, normally positioned on the top left size, under the menu bar, you have all the pairs available on the server, and with a click and drag mouse movement you can make that pair to appear in any of your chart windows, making it easier and faster to switch from one pair to another, and you, as trader, know how decisive can time be, when you have more than one order opened, mainly during news and market events.

One of the best features that MT4 offers is the option to create templates that fit better each and every trader needs. The profiles can have one or multiple charts. For example, 3 EUR/USD charts with different timeframes, or 3 different pair charts, in which you can totally customize them using the indicators of your choice. From colors to templates, the MetaTrader 4 offers the trader full interaction with his orders, which is often not possible in many broker platforms.

The main disadvantage that MT4 has against other web-based trading platforms is the fact that you have to download it. Many traders have to often check their orders from different places, such as: office or university. So if your broker only offers the MT4 or other downloadable software, it can be quite complicated for you to manage your orders, if you fall into this category. The optimal situation would be the possibility of using MT4 while you are on your computer, and at the same time, the option to open or close orders through your browser, in situations where aren’t using your computer.

Finally MetaTrader 4 is, doubtlessly, a tool that every Forex trader should at least download and be familiar with, in most of the cases, you will make it part of your trading experience, considering its features, for the moment, MT4 has a wide superiority against other trading software.

Heiken Ashi Trading System

Heiken Ashi (or Heikin Ashi, Heikin-Ashi) is the method of representing the charts using the Japanese technique of the balanced bars. Compared to the traditional Japanese candlestick charts the Heiken Ashi charts are more easily read, provide clearer picture of the market and allow easy trend spotting. What is good about this method is that it’s included into the standard set of the MetaTrader 4 indicators. You can find it there under the Custom submenu. I won’t explain how to calculate those candlesticks here because MT4 does it all automatically for you and you don’t have to worry about how those candles are drawn. Here I will tell you how to use Heiken Ashi in trading the trends. You can see the example Heiken Ashi chart:



As you see, white bodies are the uptrend candles and the red bodies are the downtrend candles. The upper shadows are usually absent on the downtrends and the lower shadows are absent when the trend is going up. There are 5 Heiken Ashi scenarios for trends:

1. Trend is normal. Rising white bodies signal ascending trend and falling red bodies signal descending trend.
2. Trend is getting stronger. Rising longer white bodies with no lower shadows for ascending trend; falling longer red bodies with no upper shadows for descending trend.
3. Trend is getting weaker. Candle bodies become shorter and for ascending trends lower shadows ocbur, for descending trends — upper shadows.
4. Trend consolidation. Small candle bodies with both upper and lower shadows.
5. Trend is changing (not accurate signal). Very small candle body with long upper and lower shadows.

That’s all you have to know to trade on the trends successfully if you are using Heiken Ashi charting method. But I also recommend reading some other article on Heiken Ashi if you want to learn more about using it.