Start with a consistent sample
Before comparing any metric, define the account, date range, included trades and cost treatment. A metric is only comparable when the record behind it is comparable. Mixing an active account with an archived challenge, omitting some commissions, or changing position size without noting it can make a clean-looking number misleading.
The definitions below describe a simple closed-trade journal. Platforms may calculate fields differently, especially return and drawdown. Choose a method, document it, and use the same method for the periods you compare.
Metric, formula, decision and caveat
The table gives the basic calculation and the question each metric can help you investigate. None of these values predicts the next trade or proves that a strategy will perform the same way in a different sample.
| Metric | Formula | Decision it can support | What it can hide |
|---|---|---|---|
| Win rate | Winning trades ÷ all closed trades | Whether a setup’s hit rate changed across comparable periods | It says nothing about the size of wins, losses or costs. |
| Profit factor | Gross profit ÷ absolute gross loss | Whether recorded gains covered recorded losses across the sample | One outlier or a small sample can dominate the ratio. |
| Expectancy | (Win rate × average win) − (loss rate × average loss) | How the average recorded outcome compares across like-for-like samples | Changing size, omitted costs and extreme trades can distort it. |
| Average win and loss | Gross wins ÷ winning trades; absolute gross losses ÷ losing trades | Whether payoff shape or exit behavior changed | Averages can conceal the spread and a few exceptional trades. |
| Maximum drawdown | Largest peak-to-trough decline in the measured equity series | Where the path of results placed the greatest pressure on the account | The answer depends on the chosen start, end and equity treatment. |
| Trade count | Number of closed trades in the comparison | Whether a metric has enough evidence to justify a closer review | Many trades from one short condition may still be a narrow sample. |
| Trading return | Use a documented return method that treats external cash flows consistently | How recorded trading performance changed without confusing it with deposits or payouts | Cash flows, fees and valuation timing can make simple equity changes misleading. |
Read the metrics together, not as a scorecard
Win rate and average payoff belong together. A high win rate can still accompany losses when occasional losses are much larger than winners; a lower win rate may reflect a different payoff shape. Profit factor and expectancy summarize different aspects of the same recorded sample, so a change in either should lead back to the trades that produced it.
Drawdown adds the path that an average can hide. Trade count adds the reliability check. If a metric moves after only a few trades or one unusually large day, flag the observation and wait for more comparable evidence instead of treating it as a new rule.
Worked example: use the formula, then inspect the trades
Suppose a 20-trade sample has 9 winners averaging $150 and 11 losers averaging $100, after the costs included in the journal. Win rate is 45% (9 ÷ 20). Gross profit is $1,350 and absolute gross loss is $1,100, so profit factor is about 1.23. Expectancy is $12.50 per trade: (0.45 × $150) − (0.55 × $100).
Those figures do not forecast the next 20 trades. The useful next step is to inspect the 20 records: Were the winners concentrated in one session? Did one large winner drive the total? Were the losses linked to a size change, a market condition or an execution tag? The metric narrows the question; the records provide the evidence.
Keep cash movement outside the execution question
Deposits, withdrawals, payouts, resets and corrections can change equity without representing trade execution. Record them as cash adjustments, then use a documented return method that handles those flows consistently. This keeps a payout or deposit from being mistaken for a trading result.
Calculate drawdown from a clearly defined equity series
For a simple equity series, keep a running high-water mark and compare every later value with it. If equity rises to $10,400 and then falls to $9,800, the decline is $600. Expressed as a percentage of that peak, the drawdown is about 5.8% ($600 ÷ $10,400). Maximum drawdown is the largest such peak-to-trough decline in the time range you defined.
The calculation only makes sense when the equity series is defined consistently. Deposits, withdrawals, payouts, resets and corrections can change equity without describing a trade result, so decide how external cash flows are treated and keep that method constant. Proloca records cash adjustments separately from Trading P&L to make the review clearer; it does not make different external performance-reporting methods interchangeable.
Sources and further reading
These sources explain why consistent calculation, transaction-cost treatment and records matter. They do not endorse a trading strategy.
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GIPS Standards Handbook for Firms: calculation methodology
Professional performance-reporting guidance from CFA Institute on consistent methodology, transaction costs and external cash flows.
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Investor.gov: broker-dealer record-keeping requirements
A U.S. Securities and Exchange Commission resource on keeping transaction records that can support later verification.
