The Chasing Returns Dashboard shows a trader their trading metrics. Knowing your stronger and weaker metrics gives you the ammunition to target improvements.
The five trading metrics are:
1. Average Profit & Loss
2. Batting Average
3. Risk : Reward
5. Discipline Ratio
Average PnL (Profit and Loss) looks at your average Net Profit (after any fees or commissions are deducted by your broker). It is a very simple indicator to look at profitability at a glance.
Batting average (also known as Win:Loss Ratio) measures the percentage of your trades that are winners. Trades can Win, Lose or breakeven (Scratch). The dashboard indicates the percentage scratch trades you have, and then the Batting Average shows you what percentage of non-scratch trades are winners.
For Example if you trade 110 trades, with 10 scratch, and 55 winners.
Batting Average = 55 / (110 – 10)% which is 55%.
The Risk:Reward ratio looks at the ratio of your Average Winners to your Average Losers. Convention calls this metric Risk:Reward although it is always written as Reward:Risk. For Example if your winning traders average $150 and your losing trades average $50, then your R:R Ratio will be 3:1.
A trading strategy will break even, if the Batting Average is 50% and the R:R Ratio is 1:1. If the Batting Average is higher, then the R:R can be lower and vice versa.
Expectancy combines the Batting Average and the R:R Ratio to give an estimate of the return for your trades.
Expectancy = BA * Average Winners – (1-BA) * Average Losers
For Example, BA 40% , Average winner of $130, Average Loser of $100.
Expectancy = ((0.4*130) – (0.6 * 100))/100 = -8%
If this trading strategy improved its Batting Average to 45% then they would turn profitable.
Expectancy = ((0.45*130) – (0.55 * 100))/100 = 3%
The Discipline ratio measures the amount of time spent in trades. It is the average time in winners / average time in losers.
A discipline ratio of less than 1, indicates that a trader might be cutting their winners too quickly, or letting their losers run too long.