Trading Metrics: Your Key to Profitability

Profitable trading does not involve opinions, predictions or even great stock tips. Successful trading is all about statistics, making more profit on good trades than you risk on unprofitable trades.  Trading without knowing basic metrics induces in your system arbitrariness and chance. Knowing how to make the metrics work for your system will shift everything as you move away from pride and feelings and towards measuring a system that supports profitability.

Traders must be able to address the logic behind their trading if they really want to function as a professional and maintain efficiency and subsequent long-term profitability.

Here are the top 10 metrics for traders:

  1. Risk/Reward Ratio: How much capital do you gamble for every unit of profit to be made?
  2. Position Sizing: How much money are you going to put in one position?
  3. Backtesting: How have you traditionally handled the buy and sell signals you are using? How have they performed?
  4. Drawdowns: How much money can you lose from your equity peak?
  5. Returns: What’s the average return you’re trying to achieve?
  6. Win %: What is your historical metric on the number of wins versus the loss of trades you make?
  7. Losing Streak Probabilities: What is the likelihood of a losing streak in your worst-case scenario?
  8. Risk of Ruin: What are the odds that you will potentially blow up your account given your exposed risk and current positions?
  9. Stop Losses: If you’re wrong how much will you lose on a trade?
  10. Profit Targets: If you’re right about a trade, what is your maximum profit potential?

It’s all in metrics, whether you’re making money or losing money in the long run.

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