## What Is The Correct Benchmark In Trading?( Essential Considerations)

Unlike investing, which focuses on long-term appreciation and wealth accumulation, trading is centered around capitalizing on short-term market fluctuations or exploiting price differentials and inefficiencies. To assess the effectiveness and performance of trading strategies, traders often rely on benchmarks that…

## Drawdown in a Trading Strategy – What Are Good Max Drawdowns?

Why is drawdown in trading important? Why should you spend time thinking about what is a good max drawdown percentage? How you prepare and deal with drawdowns in trading is important. Why is it important? Because a drawdown makes you…

## What Is the Best Stop Or Exit for Swing Trading?(Overview)

With so many factors affecting the profitability of a trading strategy, using the right stop or exit method is necessary if you want to stand a chance of making money in the market. But must it be a stop-loss order?…

## Sortino Ratio: Formula, Calculator, and Definition

Sortino Ratio is a performance metric that measures the risk-adjusted return of an investment using only the downside risk. Considered a variation of the Sharpe Ratio, Sortino Ratio uses only the standard deviation of the negative returns as its risk…

## Calmar Ratio: Definition, Formula and Calculator

There are many risk performance metrics, and the Calmar Ratio is one of the rather unknown, at least compared to the Sharpe Ratio. The Calmar Ratio is a bit different and assesses an investment’s performance against its most severe drawdown…

## Rina Index: Definition, Formula And Calculation

Rina Index is a performance metric that measures the risk to return ratio. Rina index was created by RINA systems in an attempt to find a performance metric that takes time, drawdown, and profit into consideration. Below we will go into how the…

## Arithmetic and Geometric Averages in Trading and Investing: Position Sizing and the Kelly Criterion

The arithmetic vs geometric averages can be difficult to grasp. Albert Einstein is famous for saying that compounding is the eighth wonder. But what if he is wrong? Perhaps multiplicative compounding is the most destructive force in the universe? The…

## Jensen Ratio: Definition, Formula and Calculator

As an investor, you would want to know whether your investment’s return is worth the risk. There are different methods you can use to measure the risk-adjusted performance of your portfolio, and the Jensen Ratio (Jensen’s Performance Index) is one…

## How To Build A Diversified Portfolio Of Trading Strategies (Why You Need It As A Trader) – [Two Examples]

It would be best if you built a portfolio of trading strategies that differ in markets, time frames, and types. Why? Because you want to have a portfolio of trading strategies that both complement each other and make the portfolio…

## 12 Risk-Adjusted Return Types And Measurement Methods (Calculators, Video)

A risk-adjusted return is a measure of return that compares the potential profit from an investment to the degree of risk that must be accepted in order to achieve it. The reference point is usually a risk-free investment, such as…

## Stop Loss Trading Strategy – Pros And Cons (Options, Alternatives, and Advanced Techniques)

Is a stop loss good or bad? What is the best stop-loss trading strategy? Are there alternatives to a stop-loss? How many different stop loss strategies are there? One mantra is repeated when you read books and blogs about trading:…

## Profit Factor In Trading: Definition, Calculator, Video and Formula

Profit Factor is a key performance metric used in trading to assess the profitability of a trading system or strategy. It’s calculated by dividing the total profit generated by winning trades by the total loss incurred from losing trades. Essentially,…

## Market Volatility Guide Strategies To Minimize Risks

Navigating market volatility and minimizing risks requires practical strategies. This guide directly responds to your search for ‘market volatility guide strategies to minimize risks’ by presenting sound methods to stabilize your investment portfolio. From the essential principles of diversification to…

## Profit Taking Trading Strategy – Does It Work? (Backtest and Example)

For every trade you take, you have to exit at some point. The difficult part of trading is deciding when and how to exit or sell a position; it is easier to know when to enter a trade than when…

## Risk Reward Ratio: Definition, What It Is, How Traders Use It

If you are trading, understanding the risk-reward ratio is important. It quantifies the potential profit against possible losses, improving rational decision-making. A figure like 1:3 suggests a threefold return for every unit risked, serving as a benchmark for investment and…

## Long-Term Investing: Probability Of Losses Goes Down Significantly (Study From 1929-Today)

What’s the probability of making a loss in the stock market? If you are patient, the odds are on your side. Let’s have a look: The likelihood of experiencing a financial loss in the stock market within a single day…

## Ulcer Index (UI) | Formula, Risk, Performance and Indicator

Ulcer Index charts the course through investment uncertainty, marking not only the depth of potential losses but their duration. This essential guide details the Ulcer Index’s purpose, its calculation method, and how it stands apart from other risk metrics to…

## Trading Pitfalls: A Guide To Identifying And Avoiding Common Mistakes Traders Make

Every trader faces a gauntlet of common mistakes that can erode profits and derail investments. Identifying and avoiding common trading pitfalls is not just about being cautious; it’s about being smart and strategic with every decision you make. This article…

## Position Sizing Strategies: 11 Different Types – Calculator

Position sizing strategies are critical tactics for traders aiming to allocate capital efficiently and manage financial risks. This article explores how traders can determine the appropriate trade size for each position, potentially maximizing profitability while minimizing unnecessary risks. Expect to…

## K-Ratio: Performance Metric by Lars Kestner

Developed by derivatives trader and statistician Lars Kestner, the K-ratio is a performance metric that tries to address the problem of how returns and consistency of returns are analyzed. Although the K-ratio has been around since 1996 — with some…

## Treynor Ratio: How To Calculate it, Definition and Calculator

The Treynor Ratio, which is sometimes referred to as the reward-to-volatility ratio, was named after Jack Treynor, an American economist who developed it, who also happens to be one of the inventors of the Capital Asset Pricing Model (CAPM). But…

The win ratio in trading is one of the most important parameters to evaluate a trading strategy. High win rate trading strategies are important to make you stick to your trading plan and not abandon it. The win ratio is…

## Chandelier Exit Strategy: A Trader’s Guide

Chandelier exit strategy provides a clear answer, adjusting stop-loss orders based on market volatility. The Chandelier Exit is a volatility-based indicator designed to help traders set trailing stop-loss levels, it aims to identify the optimal point to exit a trade…

## Which Stock Has The Lowest Drawdown?

Have you ever wondered which stock has the lowest drawdown? One candidate is the Canadian company Constellation Software, founded by the eccentric and anonymous Brit Mark Leonard.  Since its public listing in 2007, it has had an incredible ride. A…

## Sharpe Ratio: Logic, Video, Examples And Trading Strategies

What is a good Sharpe ratio? Every trader is looking to find high Sharpe Ratio strategies. The Sharpe Ratio is a popular and widely used indicator for comparing the return and its risk. The name is given by its inventor,…

## Dollar Cost Averaging vs. Lump Sum Strategy Backtest – Managing Sequence of Return Risk

Most investors and traders are aware of the differences between dollar-cost averaging vs lump sum investing. But what role do luck and randomness play in determining the best strategy – dollar-cost averaging or lump sum investing? In this article, we…

## 180 Years of Stock Market Drawdowns

180 Years of Stock Market Drawdowns In a presentation to the Institut des Hautes Études Scientifiques (IHÉS), termed An Analysis of 180 Years of Market Drawdowns, which is available on YouTube, Dr. Robert J. Frey, a former hedge fund manager…

## Profit Target Explained: Should You Use It In Your Trading Strategy?

Should you use profit target in your trading strategy? Many traders use various forms of stops in their trading. One of them is the profit target. A profit target is exactly what the name says: a pre-set price where the…

## Negatively Skewed Distribution in Trading Strategies – Definition, Example, Histogram (Fat Tail Analysis)

What is negatively skewed distribution in trading strategies? Negatively skewed trading strategies are “accidents waiting to happen”: You have many small winners and rare big losers. Unfortunately, the big losers can put you out of business. This is what a…

## Drawdown in a Trading Strategy Explained – What Are Good Max Drawdowns?

How to deal with drawdowns in trading is important. Why? Because a drawdown makes you fiddle, change, abandon your strategies or stop trading altogether. Thus, a good trading plan deals with drawdowns before they inevitably happen. Our anecdotal experience indicates…

## What Does Correlation Mean In Trading Strategies? Strategies and Risks

Correlation in trading strategies , which measures the relationship between two datasets, is an essential variable for a trader. How your positions move in relation to other positions is crucial to understanding and managing risk. Correlation in trading means how…

Trading performance and strategy metrics are important parameters to evaluate the quality of your trading strategy + both for your live trading strategy or if you are backtesting. Just looking at the end result, the CAGR or the annual returns,…

## Determining Optimal Capital Allocation in Trading

The optimal capital allocation in trading is most likely not very well understood by most traders. The balance between attack and defense is often a thin line. Most of us are optimists and we rarely watch out below. It’s human…

## Alpha Definition: Investing And Finance (Calculator)

‘Alpha‘ is a well-known term in finance and is a measure that evaluates an investment’s performance to a benchmark index. It reveals whether your portfolio is outperforming and is ahead of the pack or lagging, providing valuable understanding regarding the…

## Modigliani Modigliani (M2): Risk Adjusted Performance (Calculator)

Modigliani Modigliani (M2) risk-adjusted performance is used to compare the performance of investment portfolios. It’s frequently referred to as M2. This measure extends beyond traditional metrics by adjusting returns for risk, offering a percentage-based view that aligns with a benchmark’s…

## R-Squared: Definition, Calculator, Formula, Uses, and Pros & Cons (Finance)

R-squared is a statistical measure that indicates the extent to which data aligns with a regression model. It quantifies how much of the variance in the dependent variable can be accounted for by the model, with R-squared values spanning from…

## Information Ratio: Definition, Calculator, Formula and Pros & Cons

The information ratio is a key metric for assessing investment performance against a benchmark. It tells investors how much excess return is achieved per unit of risk. It’s one of many performance metrics in trading and investing. The relevant question…

## Wall Street Cheat Sheet

Wall Street Cheat Sheet The only difference between a profitable trader and a non-profitable trader is how they control their emotions. While the latter always shows the right emotions at the wrong time (often leading to wrong calls in the…

## The Risk of Ruin in Trading: Probability of Ruin and Loss (Calculator)

The risk of ruin in trading is mostly ignored by traders. Most traders are optimists, but the difference between defense and attack is often tiny. What is the risk of ruin in trading? Can the risk of ruin in trading…

## 19 Best Money Management Strategies for Traders

How can traders manage their finances to outlast market volatility and yield sustainable profits? This article lays out key money management strategies that ensure you’re not gambling with your investments. It revolves around time-tested techniques like the 2% rule and…