Which Metrics Are Best?
By Dave Mabe
Here's a reader question from Rami A. (shared with permission):
Rami A:
I’m trying to create a day trading strategy. Which financial metrics should I consider, such as risk-reward ratio, Sharpe ratio, drawdown, etc., to determine if it’s a good one?
Dave:
It's easy to overcomplicate things here for no real benefit, so I keep it super simple:
Profit Factor
Win Percent
Total Profit
Trades Per Day
And, of course, the most important factor is looking at the equity curve.
That's it!
Why is the equity curve so important? Because it's telling you a story that no metric can capture.
It's telling you the pain you would have felt during those drawdowns.
If I had to choose just one "metric", it would be the equity curve (by a mile).
When you find a smooth equity curve, it gives you a lot of flexibility in trading the strategy.
Thanks for the question, Rami!
-Dave