How do you measure and track your trading performance? What is the best yardstick that can help you track trade performance? And, how do you know how good you are as a trader?
Good? Better? Best? Mediocre? Or bad?
- Monitoring trade performance is an important element of trading activity.
- There are hundreds of trading system performance metrics but you can use a few most important metrics.
- It is important to utilize percentages and ratios to track trade performance to get a complete picture of your performance.
“How much money I am making” is the most obvious and clear-cut answer of most of the traders. Sure, money-making is the objective of trading and there is no purpose of trading if we don’t make money. But, the problem is money-making and profits are quite blunt instruments in terms of advising us where and how to be better? They cannot pinpoint where is room for improvement in our trading practices. The best way to track trading performance is to score how we are performing in different areas, find out our strengths, and get to know our weaknesses. And, that is how we can make changes in our trading practices as well as profitability.
Understand the trading performance first
Trading performance, how to track and monitor trade performance, and how to improve trade performance is the most talked about topics in the world of financial markets. Why so? Because tracking and monitoring trade performance are as crucial for your trading as breathing is for your life.
So, we know these are important factors to look at but what exactly is tracking trade performance? Monitoring trade performance is a process by which you can monitor and evaluate different trade-related metrics to track your current trading performance and then direct your efforts to optimize it for better output and profitability.
Although there are hundreds of trading system performance metrics that you can use to track trading performance, only a few of them can do the job with perfection. Using a few trading system performance metrics helps to keep it simple but impactful. You need to focus on the most relevant factors that provide the most insight and help us achieve the best results.
Most of the traders, despite the importance of monitoring trade performance and trading system performance metrics, overlook tracking and monitor performance. They face the consequences and miserably fail in their trading in the long run. In a nutshell, you cannot underestimate the importance of monitoring and tracking trading performance as it eventually leads you to improve your weaknesses and the highest possible levels of profitability.
It is rightly said that anything that gets improved when measured. Some amateur traders think that tracking trading performance is a useless and tedious endeavor. Conversely, professional traders always monitor trading performance and consider it crucial to their trading success.
What exactly do you need to monitor trading performance?
Data! It is the most important thing in the world of trading. Data collection is some task and you have to work hard to collect data. There are two main ways through which you can collect data. The first method is rudimentary and non-technical as you manually input all the data in a simple Excel worksheet, Google sheets, etc. The important data include entry and stop price, average win/loss, target price, etc. The second method is more technical. It involves using specialized programs like journal software. Those specialized programs can work in integration with the platform of your broker or as standalone software. The second approach is a better option because the broker’s platform automatically transfers all trading data into your trade journal software. That means it relieves you from manually entering data and also helps boost your trading performance.
Important trading performance metrics
There are hundreds of trade-related metrics but you should keep it plain and simple. The following are the most important trading performance metrics that can help you track trading performance in an impactful way.
Total number of trades
A total number of trades is an important measure that helps to measure many other important metrics. It will let you know how many trades you did with your trading strategy. A total number of trades help you analyze whether you trade too much, too less, or just the right amount of trades.
Win percentage is an important metric when tracking trade performance that reveals trades resulting in profitable outcomes. You can compare the win percentage with the average win amount to the average loss amount ratio. In most trading systems, when the win percentage is higher, the average win amount will be less and vice versa.
Largest winning trade
The largest winning trade is a crucial metric for you when you rely on a few big wins to contribute to your overall return. However, this metric isn’t always significant.
Largest losing trade
The largest losing trade is important in the sense that you can incorporate it into your risk management strategy. It will help you significantly improve your stop-loss or any other risk management techniques.
Average time in trade
Average time in trade reveals the average holding period of your trades. It is an important metric because you can analyze whether you are holding too long that leads to losses or holding too short that cuts your profits.
A maximum drawdown is a measure that shows the largest dip from peak to the valley during your trading period. It indicates how much loss you have incurred from a prior market peak. It is an important measure you can utilize to improve your risk management techniques by knowing the maximum drawdown level of your trading strategy.
Profit factors are also important factors while tracking trade performance. Keep in mind, profit factors alone aren’t enough and don’t contribute much to your overall improvement as a trader. However, they provide a quick picture of the profitability and viability of your trading strategy. Net profit figures, in particular, are more important stats because they are a realistic snapshot as they give figures excluding all related costs including commissions.
Keep your monitoring process simple
Once you have all the data collected, it is straightforward to track trading performance. You can judge right away what you are doing right and where is room for improvement. Moreover, the process of monitoring trade performance is highly personal. It also heavily depends on your trading methods and strategies. If you want to make the judgment of your trade performance more plain and simple, you can make data as visual as possible through techniques like charts.
Regardless of your approach to monitor trade performance, it is important to keep the process as simple as possible. You should make this process easy that can be completed in a matter of minutes. If your approach is complicated or you are not comfortable with the approach, the chances of impactful tracking of performance are significantly reduced.
Monitoring trade performance is an important element of trading activity. You cannot overlook its importance like amateur traders and see how professionals value it. There are hundreds of trading system performance metrics but you can use a few most important metrics. It is important to utilize percentages and ratios to track trade performance to get a complete picture of your performance. Simply looking at profits and winning amounts don’t provide the whole picture. However, it is also important to keep your tracking process as simple as possible to make it less tedious but highly impactful.