Profitable trading

Most people think making money is just about profits and losses.

Some focus on win rates which is too simplistic to use to decide whether a person is a good trader or not.

For now, let’s gain a healthier view of profits with some common situations.

Situation 1

Trader A makes $1,000 today.
Seems good, right?
But he risked $10,000 to make it.
10% return.
[Return calculation: (1000/10,000) * 100]
Not bad.

Trader B makes $500 today. Half as much.
But only risked $2,000. Risking a much smaller amount in the trade.
25% return.
Now that’s interesting.

Situation 2

Here’s another example:
I made $5,000 one week in 2023.
My friend made $3,000.
I felt like a genius. Until we compared notes:
Me: 20 trades, stress eating, no sleep
Him: 3 trades, played golf, slept like a baby

Situation 3

Or this classic:
$2,000 profit in January
$3,000 profit in February
$4,000 profit in March
$15,000 loss in April

The profits looked great.
The account is still down $6,000.

This is why it is not enough to look at just profits and losses.

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In trading:
Profits tell you what happened. Everything else tells you what is going to happen.

Looking at trading using simple profit or loss calculations is not enough.

There are other calculations and trading performance measures you need to know in order to become a better trader. Explore these concepts in the pages listed below:

Trading win rate

Trading profit factor