Why and How to Analyse Your Trading on a Monthly Basis?

01 October 2020

The regular analysis of one’s trading results is one of the most important steps for becoming a successful trader. Firstly, it allows traders to keep track of their progress as well as their average earnings. This can be very helpful for keeping the motivation.

Analyzing monthly trading data can also be useful for comparing results with different trading strategies and currency pairs. This gives the market participants the opportunity to identify those Forex techniques and pairs with whom they have earned the highest payouts and focus on those in the future. At the same time, traders can single out those methods, with whom they had poor results and discard or modify those for future trading.

The market participants can do their monthly reviews on just a piece of paper or a notebook. However, for some traders, the use of excel spreadsheets might be more preferable. It goes without saying that this is something that can be entirely based on one’s personal preferences.

However, the most important thing here is to conduct these types of analysis on a regular basis. The most important indicators to analyze for traders can include such items as total net gains or losses per month, the ratio of winning and losing trades as well as the average pip value.

Forex Monthly Analysis Explained

Analyzing one’s trading data is not only helpful for keeping track of one’s progress, but also for improving the trading performance in the long term. By the end of each month, it might be a good idea to keep track of the following items:

Total net gains or losses per month
The overall percentage of winning trades
Average pip value
Currency pairs with the highest and lowest percentage of winning trades
Most and least successful trading strategies
The average timeframe for trades
Largest gain and loss for one trade

It goes without saying that traders can also keep track of dozens of other indicators. However, the ones mentioned above can be very important for the long term improvement of an individual's trading skills.

Benefits of Monthly Forex Trading Analysis

Researching dozens of currency pairs, making calculations, and executing trades on a daily basis can already be quite a tiring task for some traders. Consequently, some people might wonder: What is the point of adding one additional regular task to one’s trading activities? Are there any significant benefits for conducting monthly reviews?

Here, it's worth noting that doing regular monthly analysis does have certain advantages. As mentioned above, the first item on our list is the average profit or loss per month.

Now, there are some traders, who do Forex trading just as a hobby or for entertainment purposes. However, most likely the majority of market participants have a goal to earn some decent payouts from trading. Consequently, keeping the track of average monthly earnings, helps them to measure the degree of their progress towards that goal.

This can be especially helpful for those beginners who are still using Forex demo accounts and want to decide when they will be ready to move on to real trading. Here they can take their monthly results and determine whether they have made any net gains during the period.

Obviously, if the trader is still operating at a loss it might be a good idea to stick to a demo account and keep practicing. However, once the market participant reaches the point where he or she makes net gains on a monthly basis, then it might be the time to consider moving on to the real trading accounts.

Once a trader has two or more months’ worth of data to work with, then it becomes possible to analyze the latest trends in one’s trading performance. Here the market participants can ask the following questions: are the monthly amount of losses coming down? Is the average monthly payout increasing over time?

Keeping track of the average monthly gains or losses can also help traders to set realistic targets in their trading. For example, if a market participant still posts a monthly net loss of $300, then setting a goal of earning $5,000 payout during next month might not be a very realistic target.

Instead, it might be a much better option to improve one’s trading goals incrementally. Returning to our example, after suffering $300 loss per month, traders can set an initial goal of eliminating the monthly net losses and then after 3 months, reaching $500 payout per month.

It goes without saying that setting these goals does not necessarily mean that traders will be able to achieve them. However, even if the trader posts a $50 loss during the next month, he or she still made significant progress towards those goals. After all, as we can see, the trader has improved over the previous month’s result, by reducing the total amount of net losses by $250.

In addition to that, traders might identify the largest amount of gains and losses per month for a single trade. This can be also helpful for both tracking one’s trading performance, as well as for future planning purposes.

So as we can see here, the total amount of net gains or losses per month can be used as a measuring rod for tracking one’s trading performance.

Ratio of Winning Trades per Month

Another important indicator in one’s monthly trading analysis is the ratio of winning trades. This can be an informative indicator in many ways. Firstly, it shows the rate of accuracy of the trader’s predictions, which can be very informative when making future trading decisions.

Consequently, if this ratio is low, then traders might have to consider modifying trading strategies or using other Forex indicators in the decision-making process. On the other hand, if the ratio of winning trades is above 50%, but the trader still loses the money, then this might be a major sign that the individual has to work for setting a proper risk/reward ratio.

Obviously, even the most successful professional traders can not achieve 100% winning trades. However, if traders see that their ratios of winning trades improve over the months, then it might be a notable sign that they are making significant progress.

In addition to that, traders can also identify the currency pairs with the highest percentage of winning trades. In many cases, this shows that the trader has already developed a certain degree of proficiency by trading these securities.

Consequently, in the future, the market participant might consider opening positions with those pairs more frequently, which might help him or her to improve their overall trading results.

At the same time, the market participants can also identify those currency pairs with which they had the poorest results. Here traders might decide to reduce their exposure for these types of securities and perhaps also change the types of Forex techniques they used with these pairs.

Average Pip Value and Timeframe for Trades

When conducting the Forex monthly monitoring, there are some other potentially useful items traders can keep in mind. For example, the average pip value measures the average amount of gains and losses for one pip change in the exchange rate.

Now, if a trader makes dozens of trades per month, measuring this indicator can be a time-consuming process. However, traders can take just a couple of samples from their trading journal and calculate the average pip value.

This can be very helpful for setting proper stop-loss orders as well as targets for payouts for each trade. For example, if a trader knows that the average pip value for the pair is $15, then he or she can conclude that for 20 pip gain, the payout will be close to $300.

The average timeframe for trades can be yet another important thing to analyze during the monthly reviews. This actually helps market participants to identify their trading style. For example, scalpers open their trades with a 1 to 15-minute time frame in mind. Day traders tend to close all of their trades by the end of each trading day. The swing traders typically have a timeframe ranging from several days to weeks. Finally, we have the long term traders, who might keep trades open for several weeks or months.

With each trading style, many experienced professional Forex traders tend to use different trading strategies. Consequently, if a trader manages to identify the average timeframe for his or her trades, then it can certainly be helpful for determining one’s trading style. Once traders manage to do this, they can make use of these strategies and indicators, which are most suitable for this type of trading.

Identifying Best and Worst Performing Trading Strategies

Identifying the best and worst trading strategies can be one of the most important parts of the monthly review process. This can help traders to identify their past mistakes and also techniques which work well during this period.

So how can the market participants conduct this sort of analysis? Well, in order to make it easier to understand, let us take a look at this 1-hour EUR/JPY Heiken Ashi chart:

Let us suppose that during the 28th of July, shown at the beginning of this diagram, the trader, seeing several red Heiken Ashi candlesticks in a row, decided that the pair was in a downward trend and opened a short EUR/JPY position. As we can see from this chart, this trade was not that successful, at least in the short term.

So what sort of conclusions traders can make from this example? Well, after reaching the bottom at the end of July 28th, the price has struggled to go any lower. Instead, we have several small green candles, followed by 3 large green candles, taking the exchange rate higher.

This seems like a clear case of a reversal, something traders should have noticed. At this stage, the market participants could have closed the trade and reduced the total amount of losses significantly.

On the fundamental level, traders might note that there might be very limited upside potential for the Japanese yen. The fact of the matter is that the Bank of Japan keeps its own key interest rate at -0.1%. The Japanese policymakers have already conducted several series of quantitative easing programs and they have expressed no intention of changing the policy in the foreseeable future.

Consequently, traders here might conclude that strictly relying on the latest large Heiken Ashi candlesticks to identify trends might not be the best trading strategy. Instead, market participants might be better off looking for signs of reversals and also keeping an eye out for the fundamental indicators as well.

Analyzing Monthly Trade Data - Key Takeaways

Conducting a regular monthly analysis of one’s trades can have several benefits for traders. It can help them keep track of their progress and also identify the strategies and indicators that have shown the best results.
One of the most important indicators to analyze these monthly reviews is the total amount of monthly gains and losses. In fact, traders can compare the current results with previous monthly earnings in order to measure their progress over time.
Besides tracking the percentage of winning trades per month, traders can also measure the average timeframe for trades. This can help them to identify their trading style and choose strategies and indicators which are most suitable for them.

FAQ: Analysing Monthly Forex Results

Is using the monthly charts useful for Forex Analysis?

Monthly charts can be helpful for getting a quick overview of the long term trend in a given currency pair. In fact, some traders do advise to use the monthly chart in your trading. However, for some traders, it might be less informative compared to weekly or daily charts. In order to illustrate the differences between these, let us take a look at this monthly GBP/USD chart:

Now let us compare this to the weekly GBP/USD chart:

As we can see here, these two charts cover mostly the same period. In both cases, we can see that the UK pound was engaged in the long term upward trend with the US dollar from 2002 until 2008, rising from $1.40 level to over $2.00 mark. However, during late 2008, the British currency fell sharply, dropping below $1.40 handle. From 2009 until 2014, the GBP/USD pair mostly moved sideways, without engaging in any clearly defined trend. Finally, from 2014 the pair resumed its downward trend, recently trading near $1.30 level.

We can come up with these conclusions from both of those charts. The difference here is that the monthly chart is more useful as a summary of long term trends. The weekly charts on the other hand, can provide us with a more detailed overview of the direction of the exchange rates.

How can traders adjust their trading goals during their monthly reviews?

After analyzing the total net gains or losses during the month, the ratio of winning trades, and other indicators, many traders conclude by setting goals for the future. Now, here it might be more practical to have realistic short and long term goals.

Traders can set the short term aim very close to their latest result, only aiming at the incremental improvement. For example, if traders earned a total of $100 payout during the month, then the goal for the next month might be earning $150 or $200.

On the other hand, the long term goals can reflect where the trader wants to be in several years. For example, if the current monthly short term aim is $200, then the long term goal of the market participant might be to earn enough payout to cover all of his or her monthly expenses, whether this sum will be $3,000, or any other specific number.

Should traders discard all of their failed strategies?

It goes without saying that if one or several Forex strategies consistently produce bad results, then traders might seriously consider dismissing these for future use. However, before making those decisions it might be a good idea to analyze whether the trader used this technique properly in the past, or whether there was some sort of error in the planning or execution of trades.

Before discarding failing strategies completely, traders might also consider modifying some of the settings or methodology of the technique. For example, if 14-day simple or exponential moving averages produce no results in a given strategy, then the market participants might consider using 20-day SMA or EMA.

Finally, it might be the case that the trading style of the trader might not be the best match for the chosen Forex strategy. For example, the purchasing power parity (PPP) indicator might be quite handy for long term trades, but most likely it will not be that useful for scalpers and day traders. On the other hand, the long term traders might not find the latest signals on 5-minute candlestick charts very useful for planning their trades.

Therefore, some Forex strategies which do not show positive results with one particular style of trading might be more effective for trades with a different time frame.

What are some of the most common mistakes traders make during their monthly reviews?

One of the obvious mistakes some market participants make with their monthly analysis is to limit the entire review only to the net gains and losses. This is indeed an important indicator for measuring the trading performance of the individual.

However, the purpose of the monthly trading review is not strictly limited to measuring one’s earnings or losses. In order for it to be helpful for future trading, it can include the analysis of strategies, currency pairs, and indicators, used during this period.

In addition to that, some traders also make the mistake of setting unrealistic goals for the following months. It is understandable that nearly every trader wishes to maximize his or her earnings. However, if the goal is too high, it is very unlikely that a trader will be able to achieve it. Instead, it is highly likely that the market participant might take unnecessary risks in pursuit of those aims and then even lose motivation when he or she fails to reach it.

Consequently, it might be a far better idea to set the goal for next month just slightly above the current results. This will make the aim much easier to achieve and help traders to keep up with their motivation. By this method, traders can have a possibility to improve their earnings incrementally over time.

Can monthly reviews be beneficial for stock trading and other types of investing?

The monthly analysis can be useful not only for Forex trading but also for those traders and investors who are investing their hard-earned money on the stock, bond, and real estate markets.

In the case of the stock market, the market participants can analyze the performance of their portfolios by the end of each month. Here they can measure the degree by which the value of their investments has risen or fallen. They can also record the amount of dividends received and also keep track of earnings per share (EPS), price to earnings (P/E) ratios, and other important indicators of individual stocks.

Bond investors and traders also conduct their monthly reviews. This can include the calculation of the total value of the portfolio, as well as the total amount of coupon payments received.

Finally, the real estate investors can analyze on a monthly basis such indicators as the total amount of rent earnings during the period, the market value of their properties, and the remaining balance on their mortgage accounts. By doing so, investors can measure their equity in those homes, as well as their net worth.