I want to quantify the performance of a trader and as I see in the books, there's a performance measurement called win ratio for this.
In a book, it is defined as:

Win ratio explains what portion of the trades, trading days or trading months ended
WinRatio = # Trading Periods|Gain>0 / # Total Trading Periods

Let's think of a day trader. She closes the day as flat. So, in order to define win ratio for her, I must calculate trade-by-trade performance, right? Because she is always flat at the end of days(my period is 1 day). For her, is it reasonable to define win ratio like the following?

WinRatio = # Trades|Gain>0 / # Total Trades

If so, then I want to clarify how should I count the winning and losing trades. Let's say she made the following operations:

  • Operation 1 - bought 10 shares at €3
  • Operation 2 - bought 10 shares at €4
  • Operation 3 - sold 3 of 20 shares at €2
  • Operation 4 - sold 5 of 17 shares at €1
  • Operation 5 - sold 2 of 12 shares at €4
  • Operation 6 - sold 12 shares at €3.6

Should I consider both buy and sell as separate trades? I mean, is it correct that there are 6 trades here? or only the sell operations should be considered as trades?

In my opinion, Operation 1 and Operation 2 are not trades, is it correct? If so, how should I tag these operations as "Winning trade" or "Losing Trade"?

  • 2
    $\begingroup$ Is win rate really a good measure? I can sit there and sell $1,000 lottery tickets with a 1/10 chance of winning for a dollar each. I will sell these all day, people would be stupid not to buy them. I would be stupid to sell them at that price. But i would have a win rate of ~90%... $\endgroup$
    – will
    Sep 16 '21 at 21:45

Win rate is normally 'per trade' rather than 'per period'.

"is it correct that there are 6 trades here?" - your fictional trader seems to have bought 20 shares and sold 22. I assume that's a typo and if so, I'd say you have either one trade (the net of all P&S) or two trades (as there are two buy-to-open executions). Is the strategy pyramiding? averaging down? Getting partial fills? That should affect how you think about the number of trades.

  • $\begingroup$ is the strategy of the trader important to measure her performance? I think it should be measured just by looking at the trades. $\endgroup$
    – xyzt
    Sep 17 '21 at 9:32
  • $\begingroup$ Problem is a "trade" has a definite beginning and end, here you are gradually building up and closing down positions, it becomes difficult to define what the "trades" (and the win rate) is. So this measure may not be applicable to your type of trading (too simplistic a measure). $\endgroup$
    – noob2
    Sep 19 '21 at 16:31
  • $\begingroup$ "is the strategy of the trader important to measure her performance?" - I think the relevant questions are 1) whether all the buys and sells were part of the same strategy and 2) if they are, whether the timing of execution affects the result (e.g. is there decay in the alpha over time). $\endgroup$
    – user42108
    Sep 20 '21 at 17:35

Win rate can be tricked. I tweaked my strategy last week to lock in profits, and it did that by closing out and re-entering the trade immediately. So, through this 6 bar trend, i had 3/3 winning trades and no losses. I only made 1 other trade (loss) that day. So my win rate was 3 / 4 = 0.75, but really my win rate was 0.5 because the 3/3 was really one trade but i kept getting in and out. You have to consider your average win amount, versus your average risk (stoploss size expressed in money), alongside win rate. If you are risking a lot to make very little, and you have a winrate < 0.5 ... something is wrong. Because you are taking a big risk (50/50) with a lot of cash, to make only a little return.


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