Total Net Profit = Gross Profit − Gross Loss

The total net profit represents the bottom line for a trading system over a specified period of time. This metric is calculated by subtracting the gross loss of all losing trades (including commissions) from the gross profit of all winning trades.

While many traders use total net profit as the primary means to measure trading performance, the metric alone can be deceptive. By itself, this metric cannot determine if a trading system is performing efficiently, nor can it normalize the results of a trading system based on the amount of risk that is sustained. While certainly a valuable metric, total net profit should be viewed in concert with other performance metrics.

Gross Profit = Total of all Winning Trades

Gross Loss = Total of all losing trades

Profit Factor = gross profit / gross loss 

The profit factor is defined as the gross profit divided by the gross loss (including commissions) for the entire trading period. This performance metric relates the amount of profit per unit of risk, with values greater than one indicating a profitable system.

We all know that not every trade will be a winner and that we will have to sustain losses. The profit factor metric helps traders analyze the degree to which wins are greater than losses.

Total Trades = Total of all winning and losing trades

Percent Profitable = (Winning Trades / Total Trades)x100

The percent profitable metric is also known as the probability of winning. This metric is calculated by dividing the number of winning trades by the total number of trades for a specified period. 

The ideal value for the percent profitable metric will vary depending on the trader’s style. Traders who typically go for larger moves, with greater profits, only require a low percent profitable value to maintain a winning system, because the trades that do win—that are profitable, that is—are usually quite large. This typically happens with the strategy known as trend trading. Those that follow this approach often find that as few as 40% of trades might make money and still produce a very profitable system because the trades that do win follow the trend and typically achieve large gains. The trades that do not win are usually closed for a small loss.

Intraday traders, and particularly scalpers, who look to gain a small amount on any one trade while risking a similar amount will require a higher percent profitable metric to create a winning system. This is due to the fact that the winning trades tend to be close in value to the losing trades; in order to “get ahead” there needs to be a significantly higher percent profitable. In other words, more trades need to be winners, since each win is relatively small.

Winning Trades = Count of all trades > 0

Losing Trades = Count of all trades < 0

Average Trade Net Profit = Total Net Profit / Total Trades

The average trade net profit is the expectancy of the system: It represents the average amount of money that was won or lost per trade. The average trade net profit is calculated by dividing the total net profit by the total number of trades.

This number can be skewed by an outlier, a single trade that creates a profit (or loss) many times greater than a typical trade. An outlier can create unrealistic results by overinflating the average trade net profit. One outlier can make a system appear significantly more (or less) profitable than it is statistically. The outlier can be removed to allow for more precise evaluation. If the success of the trading system in backtesting depends on an outlier, the system needs to be further refined.

Average Winning Trade = Gross Profit / number of Wins

Average % Gain = Sum Percentage of profit on winning trades / Winning trades

Example: Sum(Percentage >0) / Winning Trades

Average Losing Trade = Gross Loss / number of Losses

Average % Loss = Sum Percentage of loss of losing trades / losing trades

Example: Sum(Percentage <0) / Losing Trades

Ratio of Average Win to Average Loss = Average Winning Trade / Average Losing Trade

Largest Winning Trade = The largest winning trade found in the database

Largest Losing Trade = The largest losing trade found in the database

Largest Winner as % Gross Profit = Largest Winning Trade / Gross Profit

Largest Loser as % Gross Loss = Largest Winning Trade / Gross Loss

Max Consecutive Winning Trades

Max Consecutive Losing Trades

Categories: Strategies / Studies