Module 12 Quiz: The Trader
Every other module measured the market. This one held lesson 63’s seven trades still and measured four things a trader does to them. Six questions, all arithmetic on the same sheet, and the last one spends every column at once to find that two costs of 2.20 and 5.90 come to 5.40 together rather than 8.10.
Covers: Lessons 86 to 90, and the sheet of seven trades the module has been adding a column to since its first page.
Every question below hands you numbers and asks for a number back. Work all 6 with a calculator before you scroll to the answers; each answer shows the arithmetic, so a wrong result tells you which step to go back to rather than only that you were wrong.
The questions
1. Seven trades, re-exited at the first sign of green
Lesson 63’s rule takes seven trades on this course’s sixty closes. Their entries and the rule’s own exits are below, and a round trip costs 0.1230 a share.
| Trade no. | Entry | Rule exit | Gross |
|---|---|---|---|
| 1 | 102.6 | 105.3 | +2.70 |
| 2 | 103.7 | 105.7 | +2.00 |
| 3 | 98.8 | 101.3 | +2.50 |
| 4 | 104.4 | 105.9 | +1.50 |
| 5 | 106.9 | 106.6 | −0.30 |
| 6 | 105.8 | 107.1 | +1.30 |
| 7 | 106.0 | 107.0 | +1.00 |
Now close each trade instead at the first close above its entry. Those closes are 105.3, 106.7, 99.2, 104.8, none, 107.1 and 107.0 respectively.
Ask. What does the record net, and how many of the seven finish positive?
2. Why two rows of the table are identical
Lesson 85 measured R at 1.5443 a share. Lesson 86 runs the same seven trades at a target of nothing, a quarter of an R, a half, one, one and a half and two, and the first two rows come out identical in every column.
The first profitable close on each of the seven trades is +2.70, +3.00, +0.40, +0.40, none, +1.30 and +1.00 above the entry.
Ask. Show that the two rows must be identical, and give the target above which they would stop being so.
3. The widest stop that never fires
Here is how far each of the seven trades went against its entry, measured as the worst close inside the trade and quoted in R at 1.5443 a share.
| Trade no. | Worst close inside | In R |
|---|---|---|
| 1 | 102.1 | −0.324 |
| 2 | 103.0 | −0.453 |
| 3 | 99.2 | +0.259 |
| 4 | 104.8 | +0.259 |
| 5 | 106.6 | −0.194 |
| 6 | 107.1 | +0.842 |
| 7 | 107.0 | +0.648 |
Ask. Which stop distances never fire at all, how many trades does a stop at a third of an R fire on, and what does that tell you about the four trades whose worst close is a gain?
4. A sizing rule, and the flat position it should be compared with
The seven trades net, after the round trip, 2.577, 1.877, 2.377, 1.377, −0.423, 1.177 and 0.877 a share, in that order. Start at one unit; after a trade that finishes positive, double; after one that does not, halve.
Ask. What does the rule return, what average position does it carry, and what would a flat position of that same average size have returned?
5. What was showing, and what arrived
The best close inside each of the seven trades, against the entry, is +2.70, +3.00, +4.60, +2.30, −0.30, +1.30 and +1.00. The realised results are +2.70, +2.00, +2.50, +1.50, −0.30, +1.30 and +1.00.
Ask. How much was given back in total, what share of what showed is that, and how many trades give back nothing?
6. Two habits, run together
On these seven trades, taking the profit at the first close in profit nets 7.64 a share against the rule’s 9.84. A stop at a quarter of an R, which is 0.3861 a share, nets 3.94.
Run both at once, taking whichever exit is reached first on each trade. Trade 1 reaches its stop at bar 7 before any profitable close, for −0.50. Trade 2 closes at 106.7 on bar 10, three dollars up, before reaching its stop at bar 12. The other five behave as they did under the target alone: +0.40, +0.40, −0.30, +1.30 and +1.00.
Ask. What do the two habits cost separately, what would they cost added, and what do they actually cost together?
The answers
Each one is worked in full. Where a figure comes from a lesson rather than from this page, the lesson is named.
1. Seven trades, re-exited at the first sign of green
Subtract each entry from its new exit: +2.70, +3.00, +0.40, +0.40, −0.30 (the fifth never shows a profit, so it leaves where the rule would have), +1.30 and +1.00. That is 8.50 gross.
The trade count has not changed, so the costs have not changed: 7 × 0.1230 = 0.861. Net is 8.50 − 0.861 = 7.639, or 7.64 a share, against the rule’s own 9.84.
Six of the seven finish positive, exactly as before, and the one that does not is the same one. The habit removed 2.20 a share and left no trace in the number a journal reports. Against buying and holding, which nets 5.68, the rule was worth 4.16 and is now worth 1.96.
Answer. 7.64 a share, and six of seven — the same six.
2. Why two rows of the table are identical
A quarter of an R is 0.25 × 1.5443 = 0.3861 a share. The smallest profitable move any of the seven trades makes is 0.40, on trades 3 and 4. Since 0.3861 is below 0.40, every trade fills at the same close under both rules, so every figure in the two rows agrees.
The rows separate the moment the target exceeds 0.40, which is 0.40 ÷ 1.5443 = 0.2590 of an R. At a target of 0.26 R trades 3 and 4 would have to wait for a later close, and the row would move.
This is the check that tells you whether you have reproduced the table correctly. Two identical top rows are the arithmetic working, not a mistake.
Answer. 0.386 a share against a smallest profitable move of 0.40, so any target under 0.40 fills identically; 0.2590 R is where it breaks.
3. The widest stop that never fires
A stop fires when the worst close inside a trade reaches it, so a stop wider than the deepest excursion on the sheet can never fire. The deepest is 0.453 of an R, on trade 2, so every stop from 0.46 R outward leaves all seven trades exactly as the rule left them: 9.84 a share, six winners.
A stop at a third of an R, 0.333, sits between 0.324 and 0.453, so it fires on trade 2 alone. That single firing takes a +2.00 winner to a −0.70 loser and the record from 9.84 to 7.14.
Trades 3, 4, 6 and 7 have a gain as their worst close: they never trade below their entry on any close in their life. No stop at any distance can touch them, which means four of the seven trades are entirely outside the reach of the setting most traders think is doing the most work.
Answer. Anything wider than 0.453 R never fires; a third of an R fires once; four of the seven can never be stopped at any distance.
4. A sizing rule, and the flat position it should be compared with
The sizes are 1, 2, 4, 8, 16, 8 and 16, because the first four trades win, the fifth loses and the last two win. Multiply each by its result: +2.577, +3.754, +9.508, +11.016, −6.768, +9.416 and +14.032, which totals 43.535.
The average position is (1 + 2 + 4 + 8 + 16 + 8 + 16) ÷ 7 = 55 ÷ 7 = 7.8571 units.
Flat sizing returns the sum of the seven results, 9.839, whatever the order. At 7.8571 units that is 9.839 × 7.8571 = 77.306, so the rule returned 43.535 ÷ 77.306 = 0.5631 of what its own exposure earned. The comparison against 9.839 flatters it by a factor of nearly eight and is the wrong comparison: a rule carrying eight units is not competing with a rule carrying one.
Answer. 43.535 on an average of 7.8571 units, against 77.306 flat — a ratio of 0.5631.
5. What was showing, and what arrived
The showing total is 2.70 + 3.00 + 4.60 + 2.30 − 0.30 + 1.30 + 1.00 = 14.60. The realised total is 10.70. The difference is 3.90 a share, which is 3.90 ÷ 14.60 = 0.2671, or 26.7 per cent.
Trades 1, 5, 6 and 7 give back nothing: their best close is the close they exited on. Three of them lasted one bar, and one lasted two and peaked on the second. The whole 3.90 comes from the three trades that lasted four bars or more, and 2.10 of it from trade 3 alone, which is 53.8 per cent of the total.
That is the shape of the quantity: it is not spread across a record, it is concentrated in whichever positions were open longest, and those are the ones a trader can name a year later.
Answer. 3.90 a share, 26.7 per cent of the 14.60 that showed, and four of the seven give back nothing.
6. Two habits, run together
Separately: 9.84 − 7.64 = 2.20 for the target, and 9.84 − 3.94 = 5.90 for the stop. Added, 8.10, which would leave the record at 1.74.
Together the seven results are −0.50, +3.00, +0.40, +0.40, −0.30, +1.30 and +1.00, totalling 5.30 gross and 5.30 − 0.861 = 4.439 net. So the pair costs 9.84 − 4.44 = 5.40, and the gap between the addition and the measurement is 2.70 a share.
The whole of the gap is trade 2. The target leaves it at 106.7 for +3.00 on bar 10, so when the stop is reached on bar 12 there is no position to close. Against the stop running alone, which takes it to −0.70, the target saved 3.70 on that trade.
Costs of this kind do not add, because a habit that changes an exit does not take money off a trade — it replaces the trade with a different one, and two of them cannot both replace the same trade. The pair is bounded by the worse of the two rather than by their sum, and the record ends at 4.44, which is 1.24 below simply buying and holding.
Answer. 2.20 and 5.90 separately, 8.10 added, and 5.40 together — a gap of 2.70 a share.
What this quiz was testing
Whether you can hold the entries still. Every question above changed one thing about what a trader does with seven fixed signals and asked what it cost, and each answer came out of a column that is not on any statement: the close after the one you took, the worst close while you held, the size the previous result chose for you, and the best price that ever showed. The course spent eighty-five lessons measuring markets on a record small enough to hold in one hand. This module used the same record and the same arithmetic to measure the person holding it.
That is the last question in the course. What you take away is not a system. It is the habit of dividing, of asking what a number is a number of, of measuring the answer twice — and of asking, before you believe any number about your own trading, which column it came from and what the statement does not print.
Educational only. Trading involves substantial risk of loss. Not financial advice. Past performance does not guarantee future results.