While trading is extremely lucrative, many traders actually struggle to do well. While there might be a lot of causes behind this below-par performance, one key reason is that these traders are unaware of trading performance metrics and how they can be used and interpreted. In fact, only a small handful of traders even think about analyzing their performance.
For this reason, iconTrade, as part of its trading education, includes discussions about the key trading metrics. Traders will learn how to calculate and interpret these metrics and what they can do to improve them.
In this review guide, we will talk about some of the trading metrics that clients can learn with www.icontrade.com
Trading Metrics Taught At iconTrade:
1. Profit Factor:
The Profit Factor (PF) metric compares the amount of money made against the amount that was lost during the same period. In other words, it helps you determine if your trading activities are generating a net profit or a net loss. Here is how you can calculate the profit factor:
Profit Factor: (Total Gross Profit for the Period)/(Total Gross Loss for the Period).
Ideally, your PF ratio should be above one; a ratio of less than one indicates a net loss while a ratio of exactly one indicates that you are breaking even (neither generating a profit nor making a loss). If you want to keep yourself safe against minor changes in the market, your PF should be between 1.40 and 2.0. A PF of 2.0 and above is considered excellent and is achieved by a very small percentage of traders.
2. Expected Value:
You can use the Expected Value (EV) metric to determine the amount that you might earn or lose on a specific trade. Here is how you can calculate this value:
Expected Value: (Average Wins x Percentage Wins) – (Average Losses x Percentage Losses).
The EV metric can help you determine if your trading strategy is proving profitable or not. Other than that, the EV can also be used as the initial target for the take-profit order since your trades should generally be able to reach the EV at the very least.
3. The ‘2%’ Method:
This method requires you to choose a percentage of money that you are fine with losing on a particular trade. While every trader can use different percentages for different trades, the 2% is a commonly used figure.
The key purpose behind this metric is to help iconTrade traders avoid excessive losses on a single trade.
4. Win Percentage:
As the name suggests, the Win Percentage (WP) metric helps you determine the proportion of your winning trades. This is how you can calculate the WP of your trades:
Win Percentage: (Number of Winning Trades/Number of Total Trades) x 100
This means that, if you make 10 trades and win on 7 of those, your WP would be 70. While it is good to have a WP of at least 50, it is not uncommon for clients to be satisfied with a lower WP. This is because even though they might be losing more often than they are winning, the money that they generate on their winning trades is far greater than the money that they lose on their losing trades.
5. Risk Reward:
The Risk Reward (RR) ratio helps you determine the amount of profit that you will make on a particular trade. So, if you have the commonly used RR of 1:3, it means that you will generate £3 for every pound that you invest. It is not uncommon for RR to go as high as 1:7.
In general, the higher the RR is, the lower your WP would be. Some traders struggle to deal with losses, so they normally choose strategies involving lower RR but higher WP. Others do not mind losing as long as they hit the jackpot every once in a while. For such traders, a lower WP but higher RR is the way to go.
6. Biggest Winner:
Your Biggest Winner (BW) is the trade that contributes most significantly to your overall profits. While no trader minds big winners, iconTrade reminds its clients that such wins are rare and should therefore be treated as outliers.
However, the BW metric is important because, sometimes, large wins can skew some of the other metrics. For instance, you might want to see if your strategy still remains profitable after you have removed the outlying big winners from the equation. iconTrade’s trading journal lets clients remove these big winners to see a more accurate picture of their trading performance and results.
To sum up, you will be unable to judge your trading performance without using trade metrics, and you will be unable to improve your trading performance until you judge how you are doing.
With iconTrade’s comprehensive trading metrics education, traders can learn about the different aspects from which they can measure their trading performance.