Key Trading Performance Metrics

Objective evaluation of a trading system is impossible without quantitative metrics. They help separate emotional perception from the actual performance.

1) Win Rate (Percentage of Profitable Trades)

Formula:

Win Rate = (Number of Winning Trades ÷ Total Number of Trades) × 100%

Interpretation:

• Below 40% — the strategy requires serious revision

• 40–50% — acceptable if the profit/risk ratio is strong

• 50–60% — good for most strategies

• Above 60% — excellent result (but check the profit/loss ratio).

Important note: A high win rate doesn’t guarantee profitability. A strategy with a 70% win rate but a 1:3 profit/loss ratio will be unprofitable. A strategy with a 40% win rate and a 3:1 profit/loss ratio can be profitable.

2) Average Profit and Average Loss

Formulas:

Average Profit = Total Profit ÷ Number of Winning Trades
Average Loss = Total Loss ÷ Number of Losing Trades

Why it matters: These metrics reveal imbalances in trade management.If the average loss is significantly higher than the average profit, it suggests issues like taking profits too early or holding losses too long.

Ideal ratio: Average profit should be at least 1.5x greater than average loss.

3) Profit Factor

Formula:

Profit Factor = Total Profit from Winning Trades ÷ Total Loss from Losing Trades

Interpretation:

• Below 1.0 — losing system

• 1.0–1.5 — profitable but weak

• 1.5–2.0 — good system

• Above 2.0 — excellent system

• Above 3.0 — check for insufficient data or overfitting.

Example:

• Total Profit: 5,000 USDT

• Total Loss: 2,500 USDT

• Profit Factor = 5,000 ÷ 2,500 = 2.0

→ You earn $2 profit for every $1 of loss.

4) Expected Value (Average Result per Trade)

Formula:

Expected Value = (Win Rate × Avg Profit) - ((1 - Win Rate) × Avg Loss)

Interpretation:

• Negative — unprofitable system

• 0–0.5% of deposit — weak profitability

• 0.5–1% — good system

• Above 1% — excellent system.

Example:

• Win Rate: 55% (0.55)

• Average Profit: 50 USDT

• Average Loss: 40 USDT

EV = (0.55 × 50) - (0.45 × 40) = 27.5 - 18 = 9.5 USDT per trade. With a 10,000 USDT deposit, that’s 0.095% per trade. 20 trades per week → Expected weekly return: 1.9%

5) Maximum Drawdown (Max DD)

This is the largest drop in capital from a local high to the next low.

Formula:

Drawdown = ((Max Balance - Min Balance after Max) ÷ Max Balance) × 100%

Example:

• Max balance: 12,000 USDT

• Dropped to: 10,200 USDT

• Drawdown = ((12,000 - 10,200) ÷ 12,000) × 100% = 15%

Interpretation:

• Up to 10% — normal

• 10–20% — elevated, needs attention

• 20–30% — critical, needs strategy revision

• Above 30% — dangerous zone, high risk of account blowout.

Usage: Compare current drawdown to historical max.
If current DD approaches or exceeds it — reduce risk or pause trading.

6) Recovery Factor

Formula:

Recovery Factor = Net Profit ÷ Max Drawdown

Interpretation:

• Below 2 — slow recovery

• 2–5 — acceptable recovery

• Above 5 — strong recovery.

Example:

• Net profit: 3,000 USDT

• Max drawdown: 1,000 USDT

• Recovery Factor = 3,000 ÷ 1,000 = 3

→ Profit is 3x higher than the max drawdown — good system stability.

7) Sharpe Ratio (Simplified for Trading)

Shows how much return you get per unit of risk.

Simplified formula:

Sharpe = Average Return over Period ÷ Standard Deviation of Returns

Where:

• Average Return is the mean result of all trades (in % or currency)

• Standard Deviation reflects how much results fluctuate from the average→ the higher the deviation, the less predictable your results.

Steps to calculate standard deviation:

1. Find the average return

2. Subtract average from each trade's return

3. Square the differences

4. Sum the squares and divide by number of trades

5. Take the square root of the result.

Formula:

√[Σ(Trade Return - Average Return)² ÷ Number of Trades]

Example:

• Trades: +5%, +3%, -2%, +4%

• Average: 2.5%

• Deviations: (5-2.5)² = 6.25, (3-2.5)² = 0.25, (-2-2.5)² = 20.25, (4-2.5)² = 2.25, Sum = 29

• Std. Dev = √(29 ÷ 4) ≈ 2.69%

Interpretation:

• Below 1 — poor risk-adjusted returns

• 1–2 — acceptable

• 2–3 — good

• Above 3 — excellent.

For beginners, this metric may be overly complex. Focus on simpler ones:
profit factor, win rate, and drawdown.