Quantitative evaluation separates successful traders from gamblers. These three core metrics provide a complete picture of trading performance:
Return on Investment (ROI)
The fundamental measure of profitability. Calculate as:
ROI = (Net Profit / Total Capital Invested) × 100%
Track separately for different time periods (daily, weekly, monthly)
Compare against benchmark indices for context
Annualize returns for meaningful long-term comparison
Win Rate (Success Probability)
The percentage of profitable trades:
Win Rate = (Number of Winning Trades / Total Trades) × 100%
Analyze in conjunction with average win/loss sizes
Monitor consistency across different market conditions
Combine with QuantWave's forecast accuracy metrics
Sharpe Ratio
Measures risk-adjusted returns:
Sharpe Ratio = (Average Return - Risk-Free Rate) / Standard Deviation of Returns
Values above 1.0 indicate good risk-adjusted performance
Helps compare strategies with different volatility profiles
Essential for evaluating capital efficiency
Advanced Performance Analysis
Profit Factor
Gross profits divided by gross losses:
Profit Factor = Gross Profits / Gross Losses
Values above 1.5 indicate robust strategies
More meaningful than win rate alone
Maximum Drawdown
Largest peak-to-trough decline:
Critical for evaluating strategy risk
Should never exceed 20% for professional trading
Risk of Ruin
Probability of losing entire capital:
Function of win rate and risk/reward ratio
Should be below 1% for sustainable trading
Practical Measurement Approach
Maintain detailed trade records including entry/exit prices and dates
Calculate metrics weekly and monthly
Compare actual results with QuantWave forecast probabilities
Adjust position sizing based on performance trends
QuantSchool emphasizes that consistent measurement enables continuous improvement. These metrics provide the objective foundation needed to refine strategies and execution.
