Terminology of Efficiency

Posted by on Aug 20, 2013 in education | Comments Off on Terminology of Efficiency

Efficiency Description: Buy at the exact low and sell at the exact high is 100%.”

Total Efficiency Description

Total Efficiency is defined as a realized difference in prices from a trade expressed as a part of the total profit potential during that trade. It shows how well the total move of a trade has been used. The following formula is used to compute Total Efficiency for a trade.

 

Total Efficiency = Realized_Difference_in_Prices/Profit_Potential.

 

Realized_Difference_in_Prices is the difference between Exit Price and Entry Price taken into account the direction of the trade.

 

Profit_Potential is the difference between the highest and the lowest prices during the trade. That means

For Long Trades  Total_Efficiency = (Exit_Price – Entry_Price)/(Highest_Price – Lowest_Price),

For Short Trades Total_Efficiency = (Entry_Price – Exit_Price)/(Highest_Price – Lowest_Price).

 

Entry Efficiency Description

Entry Efficiency is defined as a maximum possible realized difference in prices from a trade that has the trade entry price expressed as a part of the total profit potential during that trade. Entry Efficiency shows how well a system enters into a trade. If a trade is long – how close an entry to the lowest point within the trading period, if a trade is short – how close an entry to the highest point within the trading period. The following formula is used to compute Entry Efficiency for a trade.

 

Entry Efficiency = Maximum_Possible_Difference_in_Prices_For_This_Entry/Profit_Potential.

 

Maximum_Possible_Difference_in_Prices_For_This_Entry is the difference between the Highest Close Price (for Long Trade or the Lowest Close Price for Short Trade) and Entry Price.

For Long Trades Entry_Efficiency = (Highest_Price – Entry_Price)/(Highest_Price – Lowest_Price).

For Short Trades Entry_Efficiency = (Entry_Price – Lowest_Price)/(Highest_Price – Lowest_Price).

 

Exit Efficiency Description

Exit Efficiency is defined as a maximum possible realized difference in prices from a trade that has the trade exit price expressed as a part of the total profit potential during that trade. Exit Efficiency shows how well a system exits a trade. If a trade is long – how close an exit to the highest point within the trading period, if a trade is short – to the lowest point within the trading period. The following formula is used to compute Exit Efficiency for a trade.

 

 

Exit Efficiency Description

Exit Efficiency = Maximum_Possible_Difference_in_Prices_For_This_Exit/Profit_Potential.

For Long Trades Exit_Efficiency = (Exit_Price – Lowest_Price)/(Highest_Price – Lowest_Price).

For Short Trades Exit_Efficiency = (Highest_Price – Exit_Price)/(Highest_Price – Lowest_Price).

Courtesy TradeStation®

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