Naturally, the goal of every trader is to achieve profit regardless of the trading market they’ve entered. For example, let’s consider that the global equity trading, calculated until the 1st quarter of 2021, reached $41.35 trillion. So, it is no wonder everyone would like a piece of it.
For that, there are plenty of ways and information that will help. But the trick is staying consistent. This implies measuring and tracking your consistent performance in the trading markets.
You can achieve this in many ways, and this post will approach and discuss the most popular ones and why it’s essential to track your trading performance.
The Importance of Measuring Your Trading Performance
First of all, trading performance essentially evaluates how your trades are going. One way to measure these actions is by comparing the profits earned and the initially invested funds. However, there are many other ways too.
Measuring your trading performance is all about the statistics which go into details about your trading strategy, profitability, reports about your trading history, and so on. To get a clear picture of your trading performance, choose suitable forex brokers on Brokersview.
Analyzing your trading performance gives you an insight into the possible reasons why you’re losing money. This analysis leads you to the history of your trades and gives you valuable details so you can improve your trading.
8 Ways to Track Your Performance
You can look at many trading performance ways, but here are the top eight you can use in your trading.
Maximum Drawdown
This way of tracking gives you the discrepancy between the lowest point you have reached in your trading and the initial deposit. For example, if you started with $1,000 and reached $2,000 but fell to $500, the maximum drawdown would be $500.
Profit Factor
It represents the amount of money you make apropos your losses, no matter the number of trades. You get it by dividing your profits and your overall losses. You have made profitable trades if the profit factor is higher than 1.0. When the factor is above 3, it means an outstanding performance.
Average Win vs. Loss Ratio
This metric compares the average profit to the average loss of a trade. For example, if you expect a profit of $1200 and your expected loss is $400 for a trade, your win/loss size is 3:1.
Sharpe Ratio
It is a very popular way to measure the risk premium in terms of risk units and your trading strategy. The Sharpe ratio is better to be one or higher because the lower numbers indicate that you take a higher risk than the profit you are gaining.
The 2% Rule
The metric indicates the risk you are willing to take. Although you can choose it on your own, the 2% risk percentage in any trade has become a standard practice for all investors.
2R Ratio
Here, you concentrate on the risk-to-reward Ratio. It’s similar to the 2% rule, with the difference that this one doesn’t set on a percentage. Instead, the 2R Ratio implies that the rewards should be twice the risk of a trade.
Gross vs. Net Return
A gross rate shows how much you have without cutting any costs. On the other hand, a net return is when you subtract all costs from the profit you’ve made. Put, when the investor pays all costs that follow the trading, they get a net rate of return.
The costs are the money given on taxes, fees, etc. Remember that net returns are always lower than gross returns.
Pips Measuring
This approach focuses on how many points or pips you are ready to risk per trade. Short for a percentage point, a pip is the smallest unit of an asset’s value. For example, if a trade goes from 1.001 to 1.002, the difference is in one pip (.0001).
Final Thoughts
Measuring your trading performance can significantly impact your buying and selling in any market. It paints a picture of how you have done previously, thus allowing you to pinpoint all your mistakes.
By analyzing your trading performance reports, you can find ways to improve your future trading. What’s more, measuring your trading performance can allow you to compare your actions to other brokers.
Center your trading performance around profitability while focusing on achievement and transparency. Having consistent and measurable improvement is crucial.
Of course, measuring your trading actions will take time. But, if you keep consistent track of your trading performance, you are a step further in making a brighter future for yourself in the trading realm.
