Quote from: Bitinsure on March 22, 2020, 03:45:18 PM

Key trading performance metrics. Profit factor

Its typical of any successful trader to evaluate final trading results for particular periods. It provides traders with plenty of opportunities for more profits, revealing the strengths of the trading system and also rooms for improvement. That is why the evaluation stage is considered to be one of the most essential parts of trading that contributes notably to profitability. Then the question arises: How to assess your results adequately?

Firstly, obviously, you need to have the data to assess. It means that your trading performance should be tracked constantly to be assessed at this or that period. Thus, the first point is to gather trading statistics. By the way, in hedge funds that stably earn huge amounts of money, the statistics is one of the most powerful instruments that is always monitored and controlled by auditors. Just do the same!

Secondly, the naked statistics you gather is not enough to get a comprehensive picture of your trading performance. It is helpful indeed, but the trading report also should contain special trading performance metrics that provide you with a tremendous amount of data to test or evaluate your trading system.

To illustrate the obligatory need for supportive calculations, imagine yourself being aware of your final, let it be, monthly, profitability. In this case, you see (hopefully) the positive number, but you are not really able to evaluate your trading strategy because you do not know the price you paid for your earnings, although it might be too high. This way, you are not aware of the trading performance efficiency and not able to increase earnings accordingly.

That is why professional traders use trading performance metrics. Among the key ones, there is a profit factor, maximum drawdown, total, and average net profit, etc. In this article, we explain the profit factor, one of the basic but fundamental metrics.

Profit factor is calculated as the gross profit divided by the gross loss (in other words the total losses including the commissions) for a particular trading period.

Profit factor = gross profit / gross loss

This way, we get a number that reveals our profit amount per risk unit. The number is crucial for traders, as trading consists of wins and losses that you cant avoid. The profit factor reveals the degree of how your profits are higher than losses, in other words, the efficiency of the trading system.

Find more detailed description here:
https://www.bitinsure.com/blog/?p=207

THANK YOU!! Waiting for the article about drawdown.

4IRIK

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