What Is Risk-Adjusted Return? (Examples And Formulas)

Risk is an inherent part of any investment, which is why investors consider risk-adjusted returns when analyzing various investment options. But what is a risk-adjusted return? 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…

Trading System And Strategy Performance Metrics (What Is It And How To Use It)

Trading system and strategy performance metrics are important parameters to evaluate the quality of your trading strategy. Just looking at the end result, the CAGR or the annual returns, might be very misleading. If you’re a short-term trader we are pretty confident in saying that most traders would abandon a strategy if the drawdowns are…

Sortino Ratio – What Is A Good Number? (What Is It And How Do You Use It?)

Named after Frank A. Sortino, the economist that created it, the Sortino Ratio is another performance metric for measuring the performance of an investment relative to the amount of risk involved. The ratio is considered a variation of the Sharpe Ratio, but what exactly is it? Sortino Ratio is a performance metric that measures the…

Jensen Ratio – What Is It And How Is It Calculated? (Jensen’s Performance Index)

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 of them. But what is the Jensen Ratio? Named after the renowned economist Michael Jensen…

What Is K-Ratio?

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 modifications though — do you really know what the K-ratio is and how it is…

Treynor Ratio, How To Calculate it : What Is It And What Is Good? – (Example & Formula)

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 what is the Treynor Ratio about and how is it calculated? Treynor Ratio is the…

What Is A Good Maximum Drawdown? Why Is Max Drawdown Important In Trading?

Why is max drawdown in trading important? Why should you spend time thinking about what is a good drawdown percentage? Max drawdown is important in trading because it influences your behavior and obviously your returns. Both are dependent on each other. What is a good or acceptable drawdown percentage? There is no definite answer, but…

Sharpe Ratio (Good Sharpe Ratio Examples From Our Trading Strategies) – What is it?

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, William Sharpe, who developed the ratio during the 1960s. Sharpe later won the Nobel Prize…

Profit Factor In Trading Explained (What It Is A Good Profit Factor? Examples Of Profit Factors)

We explain what a good profit factor is in trading (profit factor trading). How do you evaluate a trading strategy? In hindsight, it’s easy to judge a strategy by the result – the CAGR or the annual return. However, the profit factor is a handy tool to quantify the quality of the return and the…

How I Allocate My Capital And How Commissions Grab My Gross Profits

I have received some e-mails about how I allocate my capital. I admit that this is a problem and quite a difficult task. Sometimes I have no positions, suddenly all my signals trigger and the allocation becomes a problem. My aim is to trade different stocks that correlate as little as possible. Of course, that…

Negatively Skewed Distribution in Trading Strategies? – (Definition, Example and Histogram) – Fat Tail

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 negatively skewed distribution in trading strategy is – you need to understand the profit distribution…