Your Trading Sucks Because You Evaluate Strategies Wrong

If you have trouble passing prop challenges and or If you’re frustrated with inconsistent results, randomly winning and losing, or blowing up accounts despite “solid setups” — you’re not alone. Most traders never take the time to measure if their strategy is actually good.

Meanwhile, professional traders — aka quants — use proven models to test, evaluate, and optimize their systems. The good news? You don’t need a PhD to use these same tools. You just need to stop guessing.

Here are five simple metrics that show if your strategy is profitable and sustainable. Learn them. Track them. And watch your edge come into focus.

🔹 1. Sharpe Ratio – Are You Rewarded for Your Risk?

What it tells you: How much return you’re making for each unit of risk (volatility).

Goal: Higher = better (1.5+ is solid, 2.0+ is elite)

✅ How to apply:

1. Track your daily or weekly returns.

2. Use a spreadsheet or calculator:
   Sharpe Ratio = Average Return - Risk-Free Rate / Standard Deviation of Returns

3. Ignore the “risk-free rate” if you’re just getting started — it’s usually close to 0 anyway.

Simple Insight: If you’re making $500 per week with wild swings of +/- $1,000, your Sharpe is low = risky strategy. If you make $500 per week with consistent $200 swings, Sharpe is higher = safer edge.

🔹 2. Sortino Ratio – Are Your Losses Controlled?

What it tells you: Like Sharpe, but only cares about bad volatility (losses).

Goal: A better measure for high-reward strategies with few losses.

✅ How to apply:

1. Use the same formula as Sharpe, but only include negative returns in the denominator.

2. Many backtest tools or trading journals calculate this automatically.

Simple Insight: If your gains are big but you occasionally take huge losses, your Sortino will expose that. Aim to smooth out the downside.

🔹 3. Max Drawdown – How Deep Do the Losses Go?

What it tells you: Your worst loss from peak to bottom.

Goal: Smaller is better. Helps you size properly and manage risk.

✅ How to apply:

1. Look at your equity curve (your account balance over time).

2. Identify the biggest drop from a high point to the next low before recovery.

Example: If you grew from $10K to $15K, then dropped to $11K before climbing again — your drawdown is $4K (26%).

Simple Insight: If your drawdown is too large, reduce your position size or tighten stops. You can’t scale a strategy that nearly wipes you out regularly.

🔹 4. Profit Factor – Is Your Strategy Efficient?

What it tells you: The ratio of total profit to total loss.

Goal: Above 1.5 is decent, 2.0+ is excellent.

✅ How to apply:

1. Add up all winning trades → total profit.

2. Add up all losing trades → total loss.

3. Divide profit / loss.

Example: $5,000 total wins ÷ $2,000 total losses = 2.5 PF

Simple Insight: You can have a low win rate and still be profitable if your PF is high — focus on quality of trades, not just quantity.

🔹 5. Expectancy – Are You Actually Making Money?

What it tells you: How much you make or lose on average per trade.

Goal: Positive and consistent expectancy = real edge.

✅ How to apply:

Expectancy = (Win % x Avg Win) - (Loss % x  Avg Loss)

Example:

• Win rate = 50%

• Avg win = $200

• Loss rate = 50%

• Avg loss = $100
  = (0.5 \times 200) - (0.5 \times 100) = \$100 - \$50 = \$50 per trade

Simple Insight: This number tells you the average value of every trade over time. If it’s negative, you’re playing a losing game.

🧠 Why Quants Swear By These Metrics

Quants use these metrics to:

• Rank strategies

• Limit risk exposure

• Optimize capital allocation

• Automate decision-making

• Scale what works and cut what doesn’t

They don’t “feel” out the market. They test, tweak, and prove that something works before putting real money on the line.

🚀 Start Using These Metrics Today

You don’t need complex software. Start with:

• A spreadsheet (Google Sheets or Excel)

• Best option: Your trading journal with backtesting features like TraderSync

• Free tools: TraderVue

Track:

✅ Each trade

✅ Profit/Loss

✅ Win rate

✅ Avg win/loss

✅ And then calculate the 5 metrics above

🔚 Final Thought

If you’re not measuring these things, your strategy might be worse than you think — or better than you realize.

Stop trading blind. Start trading smart

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