His name was Daniel. He'd called 73% of his trades correctly in 2019 — a genuinely impressive strike rate. But by December he'd lost 34% of his $80,000 account. The maths was brutal in its simplicity: his winners averaged $400, his losers averaged $1,850. A great eye for direction, destroyed entirely by sizing. The annual review revealed everything. He just never did one.

Most traders track entries and exits obsessively but never sit down once a year to run the actual numbers. The annual review isn't a motivational exercise — it's forensic accounting. You're looking for the relationship between your win rate, your average win, your average loss, and your position sizing. Those four numbers tell the real story of a trading year.

CONCEPTYour annual review should calculate expectancy: (Win% × Avg Win) − (Loss% × Avg Loss) — if this is negative, no strategy saves you.
WARNINGA high win rate with oversized losses is mathematically guaranteed to destroy capital — review your loss-to-win ratio before celebrating strike rates.
KEY IDEACompounding works both ways — consistent 2% monthly gains build accounts; consistent 3% monthly losses compound into catastrophic drawdowns faster than most traders realise.

Start with your expectancy formula: E = (W% × Avg Win) − (L% × Avg Loss). On a $50,000 account risking 1% per trade — that's $500 risk — if your win rate is 45%, average winner is $900, and average loser is $500, your expectancy per trade is (0.45 × $900) − (0.55 × $500) = $405 − $275 = $130. Positive expectancy. That account survives and grows.

Account Balance: Positive vs Negative Expectancy ($50,000 start)0$40k$50k$60k$70k+Expectancy−ExpectancyMonths (Jan → Dec)

The second layer of the annual review is drawdown analysis. Your maximum drawdown — the peak-to-trough percentage loss across the year — reveals whether your position sizing is survivable. A 25% drawdown on $50,000 leaves you at $37,500. To recover, you now need a 33.3% gain on a smaller base. Many traders severely underestimate this asymmetry. The Kelly Criterion offers a mathematical framework for sizing positions relative to your edge, while fixed-fractional position sizing remains the most practical method for controlling drawdown across varied market conditions. A thorough understanding of drawdown mechanics is what transforms raw trade data into actionable sizing decisions.

Run your annual numbers with the same discipline you apply to your charts. The traders who compound wealth over time are rarely the best analysts — they're the best accountants of their own performance.

This content is for educational purposes only and does not constitute financial product advice. Past performance is not indicative of future results. Profit Logic Ltd (ACN 688 669 936) accepts no responsibility for errors or omissions in this content or anywhere on this website. Always seek advice from a licensed financial adviser before making investment decisions.