Tuesday, August 18, 2009

How Well Did I Trade Today?

In the spirit of the recent post on trading metrics, here are three measures of trading performance that might be helpful for intraday traders:

1) Profit/loss per round-turn contract (for futures) or profit/loss per shares traded (for stocks). This tells you whether the money you were making during the day was consistent with your level of market exposure. To make $10,000 on 2000 contracts traded is a much better performance than making $15,000 on 10,000 contracts traded. Here you're asking yourself: did my extra activity during the day translate into enhanced performance?

2) Profit/loss per unit of market movement. Here you look at the distance the market has traveled during the day (say, the sum of the ranges of the day's 30-minute bars) as the denominator and the profit/loss as the numerator. This tells you how your performance varied as a function of short-term opportunity in the market. Making $10,000 in a narrow, range market is a better performance than making $15,000 in a volatile breakout market.

3) Number of shares or contracts traded per unit of market movement. This would provide an objective metric for how aggressively you traded, whether you undertraded opportunity, or overtraded a market with poor opportunity.

As with all metrics, the idea is to see how the ratios look when you're trading well and how they look when you are in drawdown mode. Keeping track of the stats can be extremely helpful in proactively identifying problems in trading before they cost you serious money.