If you want to separate the winners from the losers in the world of trading…
You need to know and understand your trading metrics. To establish your metrics, you need to have a winning back-tested strategy.
This helps to make your trading manageable and almost predictable.
Let’s assume you have paper traded a strategy and are ready to roll it out…
Let’s find out if you are ready to calculate these 4 metrics.
Trading Metric #1: Number of trades to take in a year
First, you need to have an idea of the number of trades you plan to take in a year.
Let’s say you’re an intraday trader.
That is a trader who only holds a position within the day, and never holds overnight.
Let’s say in 200 trading days, you expect to take around 400 trades per year.
If you’re a swing trader, where you don’t mind holding trades over a couple of weeks, then the number of trades may be less.
For example, you might take 120 trades in a year.
That equates to around 10 trades per month.
Also, you might diversify and split the trades into different markets like stocks, indices, commodities and Forex.
That means you could aim for 60 trades in stocks, indices, and commodities and another 60 trades in Forex and maybe even crypto.
But the first metric – is deciding how many trades you expect to take.
Trading Metric #2: Win rate
Now that you have your number of trades, you can work out how many winners and losers you can expect based on your strategy.
As an intraday trader, if you know the number of winning trades was 240, then your win rate is as follows:
Win rate = (Winning trades / Number of total trades)
= (240 / 400)
= 0.60 or 60%
Or if you’re a swing trader, with 72 calculated winners then your win rate will also be 60% (72 / 120).
With this trading metric you’ll know the percentage of trades that would result in profits.
And yes, past data doesn’t guarantee future results.
But it is a guide to potential future results if you assume all things remain the same or similar.
Trading Metric #3: Percentage return
Trading success is relative.
You need to think in terms of percentages, not currency.
If I asked you how much you banked in a year and you told me R5,000 or R500,000.
I wouldn’t be able to comment on whether that’s good or not.
So, you’ll need to know your percentage return to make a conclusion on how your trading is going.
Let’s say your starting capital is R10,000.
And after you back test your results, you find that, with winners and losers, you achieve a 32% annual return.
This means, you’ll be aiming for a profit of R3,200 by year-end (0.32 * R10,000).
And if your capital was R5,000,000, and you also have a metric of 32% per year.
Then you’ll be looking to profit around R1,600,000 per year.
This approach will help you ensure you maintain a perspective that is consistent regardless of your account size.
SIDE NOTE: Anything from 26% and up, in terms of returns per year, is an excellent achievement with trading.
Trading Metric #4: Expected Drawdown %
Like I mentioned earlier.
You’re going to have great winning streaks.
But also, the market is going to move to unfavourable territories too.
And during this time, you have to prepare for the inevitable downside to come.
A drawdown is basically a reduction in your trading capital after a series of
So, you’ll need to prepare and set a reasonable expectation for this downside.
For example, let’s say you go through a worst-case scenario drawdown of 20%.
This is known as your drawdown metric.
This means you should be prepared for a decrease of up to R2,000 in your starting capital of $10,000.
Or a drop of up to R1,000,000 with your R5,000,000 account.
Whether it occurs in May or persists until August, this will also help prepare you for the challenging times.
And you’ll then need to know, this metric to manage and protect your portfolio during the drawdown phase.
Tips on how to protect your portfolio during the drawdown.
1. Risk less per trade from 2% down to 0.5% until the market goes back into favourable territory.
2. Halt trading completely and go back to back-testing until the market is conducive for your strategy.
3. Stop trading certain markets, if they are moving in sideways and in consolidation ranges.
If you know how to protect and preserve your portfolio, then you’ll be able to weather any drawdown.
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Now… that’s what I call a winning trading strategy.
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I trust you’re going to take trading metrics more seriously with your trading.
It gives you a game plan.
Remember, consistency is the key.
So always have your trading journal, stats and trading metrics close to you.
You’ll then have a clearer picture of how to trade into the future.
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