How to rate a tader based on his profit
factor ?
How to rate a trading system based
on his profit factor ?
factor ?
How to rate a trading system based
on his profit factor ?
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How would you rate a trader based on his profit factor ?
- Thread starter NickBarings
- Start date
Anybody ?
You have to consider the win / loss ratio and the draw downs along the way.
Most favorable is:
- a high percentage of winners.
- low draw downs
- consistent gains
- each time period is net positive
- controlled and minimal amount at risk
I don't think there is a spreadsheet that you can put this into to compare one trader against the other.
If there is then add info about it here....
Most favorable is:
- a high percentage of winners.
- low draw downs
- consistent gains
- each time period is net positive
- controlled and minimal amount at risk
I don't think there is a spreadsheet that you can put this into to compare one trader against the other.
If there is then add info about it here....
I think mark douglas talks about this on one of his books...
he separated traders in 3 groups
guys who lose their shirt...
Their equity line looks like a downhill trail...
guys who where on a finantial rollercoaster, going up and down on their equity line, going broke and making small fortunes several times in their lifes.
guys who are consistent winners.
the opposite from the first group...
he separated traders in 3 groups
guys who lose their shirt...
Their equity line looks like a downhill trail...
guys who where on a finantial rollercoaster, going up and down on their equity line, going broke and making small fortunes several times in their lifes.
guys who are consistent winners.
the opposite from the first group...
I would think that the profit factor
is a good measurement for risk/reward
of one trading.
is a good measurement for risk/reward
of one trading.
mcelitetrader
ET Sponsor
a simple definition of Profit Factor
...is the profit generated by profitable trades divided by the losses generated by losing trades. A value of 2 would indicate that twice as much money was made from winning trades than was lost from losing trades. Higher values indicate less risk.
I find that wins/losses is only part of the picture....This has to be coupled with profit factor and vice versa. I have well more losing trades than winning trades ~80% but the losers are clipped before they can hurt and the winners are left to run. By the definition a trader with a profit factor less than 1 is losing money and is therefore a risk.
To answer the question...I think scale has to enter the equation. If i trade only a few hundred shares my profit factor could be enormous but P&L is miniscule whereas I could take massive share lots and have a profit factor tending towards 1 and still have a large P&L. I think with all of these numbers you have to see the context.
...is the profit generated by profitable trades divided by the losses generated by losing trades. A value of 2 would indicate that twice as much money was made from winning trades than was lost from losing trades. Higher values indicate less risk.
I find that wins/losses is only part of the picture....This has to be coupled with profit factor and vice versa. I have well more losing trades than winning trades ~80% but the losers are clipped before they can hurt and the winners are left to run. By the definition a trader with a profit factor less than 1 is losing money and is therefore a risk.
To answer the question...I think scale has to enter the equation. If i trade only a few hundred shares my profit factor could be enormous but P&L is miniscule whereas I could take massive share lots and have a profit factor tending towards 1 and still have a large P&L. I think with all of these numbers you have to see the context.
Still no one has quoted a figure...
Since the profit factor doesn't take into
account the sequence of your trades to
measure risk/reward, it is better figure
to quantify risk/reward than simply
dividing net result/max drawdown which
depends from the sequence of the trades.
Since the profit factor doesn't take into
account the sequence of your trades to
measure risk/reward, it is better figure
to quantify risk/reward than simply
dividing net result/max drawdown which
depends from the sequence of the trades.
Agreed with lescor and most other posters.
If you're going to financially rate a trader you need a mix of measures.
- how much can be made per day is key (lack of trading opportunities, thin markets etc can make a good system go bad)
- is the system reasonable using some measure like profit factor or expectancy (better) to know that its picking a good amount of money out for the amount risked. But a pf of 5 isnt necessarily better than 2 ... as illustrated by lescor.
- smoothness - do you want almost every day to be a winner, almost every week to be a winner or almost every quarter to be a winner (long term daily chart trading).
But like trading there are no absolutes ... you have to get the right mix for your capabilities, your comfort levels, and the way you want to trade.
If you're going to financially rate a trader you need a mix of measures.
- how much can be made per day is key (lack of trading opportunities, thin markets etc can make a good system go bad)
- is the system reasonable using some measure like profit factor or expectancy (better) to know that its picking a good amount of money out for the amount risked. But a pf of 5 isnt necessarily better than 2 ... as illustrated by lescor.
- smoothness - do you want almost every day to be a winner, almost every week to be a winner or almost every quarter to be a winner (long term daily chart trading).
But like trading there are no absolutes ... you have to get the right mix for your capabilities, your comfort levels, and the way you want to trade.
Lescor,
Ok, what about PF*(frequency of trades)
as a measurement tool ?
Ok, what about PF*(frequency of trades)
as a measurement tool ?