12 Ways to measure your trading performance

Education / 6 Min Read
Milan Cutkovic / 28 Sep 2021

Focus, achievement and transparency. Three words that capture the essence of being able to track your performance as a trader.

It would be a fair assumption that you and your friend or family are highly competitive people.

The likelihood is, you have been competitive and looking to raise your standards as a youngster at school, on the sporting field, and then when you started your trading journey.

For most, none of this would have been possible without a way to measure and track your performance.

But the challenge is, trading is one of the most isolated activities around. You can’t exactly ask another trader to create a dashboard and share their results.

But wouldn’t it be nice if you had a community of traders where you can aim for consistent and measurable improvement?

Before we tell you how that is possible, let’s look at how to measure your trading performance, the key advantages of using a leaderboard when it comes to your trading and what the definition of good performance actually is.

What is trading performance?

The term 'trading performance' refers to a method of evaluating how a trader is doing with their trades.

An easy form of measuring performance may be a simple return on capital calculation. For example, if a trader deposits $1000 and achieves a profit of $500 during a certain period of time, his return would be 50 %.

However, focusing purely on your return and ignoring the rest isn't the best way to approach it and you would be missing out on a lot of useful information that can help you improve your trading. There are plenty of ways you can measure trading performance and in this article, we will discuss some of the most popular ones.

Analysing your trades with trading performance reports and trading performance graphs

Trading performance reports are reports that provide you with a history of your trades along with key performance statistics.

In MT4, you can retrieve such a report at any time by selecting "Account History" within your terminal.

First of all, you will have to define the time period you want the report to cover. Once you have all the data you want within the "Account History" tab, you can again right-click anywhere within the tab and click on "Save as Detailed Report".

Steps to get a detailed report in MT4

 

MT4 will generate a detailed report that will look as follows:

Example of detailed report in MT4

Beneath the list of closed and open trades, you will see a list of useful performance statistics.

You will also notice that there is a graph.

A performance graph is an easy way to visualise your performance and how consistent you are at generating profits.

Traders that are consistently profitable will have a performance graph that shows an upward trend without major slumps. 

On the other hand, traders that lack consistent results will see huge swings on the performance graph - for example, a sudden spike followed by a crash.

Recommended reading: What is trading psychology and why is it important?

What is good performance?

There is no correct answer to this question. Again, it is important not to look only at the Dollar or percentage return a trader achieves during a particular period of time.

Imagine that you meet two traders. Trader A generated a return of 50% within 3 months, while Trader B generated a return of 5% within the same period of time. If this was the only information you had, you would probably say that Trader A is the more successful trader out of those two.

However, without seeing the full picture, it is impossible to know. If we look closer at their performance, Trader A might lack a proper risk management plan and got lucky on a few trades. His performance graph may show large spikes followed by sudden declines.

On the other hand, Trader B's graph shows consistent performance as he has a solid trading plan with sound risk management rules in place.

What defines good performance in trading is also very personal. Comparing your performance to other traders will not benefit you. Instead, you should define your own goals and ask yourself what it is that you want to achieve by trading.

Ways to measure your trading performance

Discover 12 common ways to measure your trading performance below:

1. Absolute drawdown

The difference between the initial deposit and the lowest point the trading account reached below the deposit level. For example, in a trading account with an initial deposit of $5000, a peak of $6000 and a minimum value of $3000, the absolute drawdown would be $2000 ($5000-$3000 = $2000). It is a representation of the biggest loss compared to the initial deposit.

2. Relative drawdown

Unlike the absolute drawdown, the maximum drawdown is comparing the peak to the lowest value the account has reached. Using our previous example, the absolute drawdown would be $3000 ($6000 - $3000).

3. Average win size vs average loss size

A ratio of the average profit per trade compared to the average loss per trade. For example, if a trader can expect a profit of $1000 per trade and a loss of $500 when he is wrong, the profit/loss ratio will be 2:1 ($1000 / $500).

4. Profit factor

Profit factor shows how much money you make relative to how much you lose on your trades. For example, let's go through your last 5 trades. You made money on 2 trades, $500 on one particular position and $800 on the other. You lost money on 3 trades, $150 on each, which gives a total of $450. If we divide the total value of the winning positions ($1300) with the total value of the losing positions ($450), we get the number 2.89. It means that your profits were 2.89 times higher than your losses.

5. Sharpe ratio

A popular ratio of risk-adjusted returns. The higher the ratio, the higher the return a trader can expect in relation to the risk taken. Traders often aim to have a Sharpe ratio of 1 or higher, as a figure lower than that suggests that he/she is taking too much risk compared to the expected return.

6. The “2%” Method

With this method, you pick a percentage that you are willing to risk per trade and do not exceed it. While every trader can pick their own percentage, the 2% is a figure commonly used. The idea is to prevent excessive drawdowns on a single trade.

7. Measuring points or pips

With this method, you focus on the amount of pips/points you are willing to risk per trade. However, while you may express that you risked "20 pips on a trade" when speaking to fellow traders, it is not actually a method you should apply. After all, it is real money that you are risking, and you should define it in Dollar terms and % risk.

8. Measuring based on "R."

The focus here is on the risk to reward ratio. "2R" would for example mean that the reward on a particular trade should be twice the risk - e.g. a potential profit of $20 for risking $10 on a trade. 

9. Win percentage

The win/loss ratio will show how many winning trades are relative to the number of losing trades a trader has. If out of 10 trades, you end up with 6 winning trades, you would have a win ratio of 60 %. In trading, it is not unusual that profitable traders can have a win ratio of less than 50 %. This could be because the profit they make on their winning trades far exceeds the loss they make on their losing trades. 

10. Sortino ratio

Sortino ratio is very similar to the Sharpe ratio, but it was designed as an improved version of it, as it focuses on penalizing only the downside volatility, but not the upside volatility. After all, traders don´t want to view unusually high positive performance as a negative occurrence. 

11. Calmar ratios

Another ratio that measures the risk-adjusted return. The difference between the Calmar and the Sharpe/Sortino ratio is that the Calmar ratio takes the drawdown, and not the volatility, as a risk measure. While it has its uses, traders might find the Sharpe/Sortino ratio more useful as a measure to evaluate a trading system.

12. Gross vs net return

A gross rate of return shows an investment's return before any expenses/costs. A net rate of return shows an investment´s return after any expenses/costs. In forex trading, this could be for example swap charges and commissions paid to the broker.

What is PsyQuation?

PsyQuation is a professional trading tool combining the power of AI, analytics and community.

You can no doubt see how powerful it is to measure and track key performance indicators in the areas of your life that will have the greatest impact.

And so too with trading, tracking your performance across key metrics will provide you with the focus and transparency you need to excel as a trader.

PsyQuation combines both the PsyQuationScore™ and a trading leaderboard that is community driven and powered by Machine Learning.

Psyquation measures and tracks the four critical areas of your day to day trading, including:

  • Skill
  • Risk
  • Behaviour
  • History

Each component is measured out of 100 and is prominently displayed in your trader's dashboard as per the image below. This is perfect for those who are committed to becoming the best trader they can be and make small, meaningful improvements in each of those four areas.

PsyQuation scores

PsyQuation leaderboard

For those who love the thrill of competing against fellow traders, PsyQuation has a leaderboard as well.

The individual PsyQuationScore™ is the default measurement that PsyQuation uses to rank all the traders within the vast community.

PsyQuation leaderboards

Utilising a leaderboard system to measure your trading performance provides you with some positive benefits:

  • Transparency. You can see exactly where you are relative to your trading peers.
  • Recognition. If you are good, you deserve to see yourself atop the leaderboard.
  • Feedback. To move up the leaderboard means you must meet certain criteria with your trading. You can view the data on your trading and adjust accordingly. This type of feedback is invaluable for every aspiring trader.
  • Competition. Traders are a competitive bunch, and nothing helps elite sportspeople, musicians or traders more than a competitive environment.

But do remember, the leaderboard isn’t there solely as a means of identifying the best of the best.

Instead, you want to think of the combination of the leaderboard and the PsyQuationScore™ to help you focus your attention in those areas demonstrated by professional traders.

Let's deep dive a bit more and look at the key advantages of using a leaderboard when it comes to your trading. 

Advantages of using a leaderboard to track trading performance

Community and connection

Some of the most powerful fitness apps on the market today are those which combine the simplicity of recording results and a community.

Fitbit is one of the world’s most recognised and popular fitness trackers in the world.

One of their early breakthroughs was linking the community together so you, your family and friends could all be part of your ‘inner circle’.

This allows you to have some fun and track your performance among your peers and family.

The community aspect of Fitbit is incredibly powerful. People feel a sense of connection to other like-minded people. And we all tend to gravitate towards those people who are like us. This is something PsyQuation provides, community and connection through trading.

Using dopamine to power through life

Dopamine is a neurotransmitter, one of those chemicals that is responsible for transmitting signals in between the nerve cells (neurons) of the brain.

You may also hear it referred to as the chemical your body produces when you get a pleasurable reward.

When you set a small goal and achieve it, your body releases a pleasurable hit of dopamine.

Why not use this information to your advantage?

You can set several small goals, and the more you achieve, the more dopamine is released into your body.

This is another element PsyQuation can provide when tracking performance. Want to improve your 'skill' and 'risk' scores in PsyQuation? Set a goal and strive to achieve it.

Feedback is critical

Like any good tracking progression, you want to be doing those things that help you become a better, smarter and safer trader.

Traders can take advantage of artificial intelligence and machine learning programs that track and measure helpful trading states to help you raise your game.

By linking your trading to a series of measurable trading-specific tasks that show where you are excelling and where you need help, you cannot help but improve.

Get serious about measuring your trading performance

Make this the year to get serious about tracking your trading performance. Find out more about how you can use the PsyQuationScore™ and leaderboards to help take your trading to the next level.

 

Sign up for a live trading account today and get access to PsyQuation for FREE! Start measuring your trading performance with AI and Machine Learning.

 

 

 

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.

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