Trade size is an important factor in your trading performance.Typically a percentage of your asset size is selected with 1 to 2 % of total equity representing the highest to avoid massive drawdowns. Setting a loss per trade for your trades is very important but it is just the beginning of the story. How to analyze stops can make or break your trading performance. Some traders use a volatility filter or chart analysis.They both can play a role but don't ignore the most obvious source of stop analysis. Past trades can be a goldmine of valuable information.

Analyzing your past trades can lead to immediate rewards in better performance. The first step is to gather the information. The easiest method is to keep the bar data for the length of the trade. From this data we can pull out the trade performance parameters. The most important involve time and price. The price data yields the extremes of profitability. The maximum profitability is called the maximum favorable excursion(MFE). The maximum unprofitrablilty is the maximum adverse excursion(MAE). Creating an excel database of these parameters can help in overall system performance.

The MAE is the most important factor in the stop analysis process. The first step is to isolate the winning trades from the losing trades. This will yield the goldmine. Winning trades will have a much lower average MAE than the losing trades. This may not seem that important. But ,one of your goals in trading is to maximize winners and cut losses. Find the maximum MAE of the winners. For example, my breakout system in the crude oil has a max MAE of 50 cents. My average loss was 75 cents. I can now use this parameter to set my stop. I can lower my stop to this new parameter. Placing a stop 50 cents away from my entry will not effect my winning trades but will lower the average loss on my losing trades. My average loss will go down to the new stop loss of 50 cents. This has raised my winning expectancy by lowering my average loss while maintaining my winning trade percentage. It will lead to lower drawdowns as well.

Analyzing past trade performance is the first step in improving your trading results. The results can be dramatic. Always strive to lower average losses and raise winning percentage and average wins. These factors determine your net profitability.