Thread by @Crypto_C00kie

Just a small update to this thread I did on journaling your trades. Showing you how I use R, MAE and MFE to see how my trades are performing in 1 simple graph.

https://twitter.com/Crypto_C00kie/status/1141614668701741056

First, lets quickly refresh:

⭐️R = Abstracted unit of measurement for amount of risk (absolute value of entry price-stop price).
⭐️MAE = Min. price reached during your trade before stopping out (or your initial stop).
⭐️MFE = Max. price reached during your trade.

Quick example:
- Enter coin at 400 sats.
- Stop at 380 sats.
- 1R = 20 sats.
- Exit at 460 sats = realized a 3R trade.
- Min. price during trade is 390 = MAE R is -0.5R.
- Max. price during trade was 500 = MFE R is 5R.

Simple right? 👨🏻‍🏫

So, if we keep track of these 3 values for all of our trades we can compare them, because we're using an abstracted unit. Lets plot these 3 in a chart with Realized R on X-axis and MFER and MAER on Y-axis. That would look something like this...

Let's start analysing some parts of it. First draw a 45 degree diagonal through the positive area of the chart.

If you have MFER values that fall below this line you're doing something wrong. You can't have realized more profit than the max value that coin has reached 😅

The closer to this diagonal the better, because it means that your realized profit (Realized R) and the maximum possible profit (MFE R) are really close to one another. The further to the right on the chart, the better, because it simply means you've made more profit.

If you have a lot of points further away from the line it means that you left a lot of profit on the table. E.g. the trade shown below. You could've had twice as much profit but for some reason you left it on the table.

Moving on to another area on the chart. Here we have the "Area of Horrible Decisions" (marked in red). The higher we go in this area the worse it gets. These are the trades that were closed at a loss, but had reached a profitable high. Imagine closing a 6R trade at a -1R loss 🤦

Samples of trades like this?

1. Not securing profits in time and ruining the party stopping you out at a loss.
2. A scam pump to make a high, followed by a dump to stop you out.

You probably get the idea. Either way, you're leaving a lot of profit on the table.

Then we have an area where we don't want to see anything. The Kill Zone. This is the area beyond -1R. What does it mean? It means that your trade was closed somewhere below your initial stop loss. NEVER change your initial stop loss. Have a plan before entering and stick to it.

One more little area of note, the area between the 0 point and -1R/-1R. These are trades that we unfortunately didn't close profitably, but at least stopped out within our pre-defined risk. If applying position sizing, this should not phase you.

And that's it. The area with red dots in the positive part of the X-axis don't really matter. They're trades that we closed profitably. So what do we have here? A fairly simple graph that can tell a lot about your performance if you were to map your trades into it.

Summarizing:

✳ A lot of trades far away from the diagonal in the green area? You know how to pick winners, but structurally don't take enough profit. Try experimenting with moving your stops sooner to lock in more.

🆘 A lot of trades in the red area? Probably quite a few trades where you could have had a nice profit, but for some reason, you took a loss. Closing trades too late?

💀 If you have a lot of items in here, perhaps trading is not for you.

There we go. All I have for you. I hope you found it an interesting read and would love to see your graphs if you decide to create them 😘 If you're still utterly confused, just re-read it a few times. The Cookie Monster can't help you with your ABCs and reading comprehension.