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Definition
A statistical measure that indicates how much the losses on your losing trades deviate from the average loss on losing trades. A higher standard deviation suggests greater variability in the size of your losing trades.
Formula
The same standard deviation formula is used, but only considering the PnL values of losing trades.
Example
Let’s say your last 5 losing trades had the following PnLs:
- Trade 1: -$50
- Trade 2: -$150
- Trade 3: -$300
- Trade 4: -$80
- Trade 5: -$60
If the calculated standard deviation on these losing trades is $105, it means your losing trade losses tend to vary by about $105 around your average losing trade loss.
Key Points
- Risk Management: A high standard deviation on losers might indicate a need to improve risk management strategies, particularly regarding stop-loss placement and trade sizing.
Considerations
- Sample Size: A larger sample of losing trades provides a more reliable standard deviation calculation.
