PnL as the Outdated Trading Stat

Will PnL be an outdated trading stat one day?

Five years ago MLB pitchers were mostly defined by Wins and how many they had. Today this is seen as an outdated stat that does not tell you the real value of the pitcher. Sabermetrics has taught us there are more important measurements of a pitcher’s contribution like: percentage of ground balls, percentage of pitches swung at and missed, home runs allowed per nine innings, batting average on balls in play, etc. In the Sabermetrics universe, if you make an argument that one pitcher is better than another based on Wins you are considered an uneducated baseball fan.

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In trading most traders are judged and judge themselves based on PnL. When our firm meets monthly with our partners, we review each trader. PnL is the first place we start.  But we also discuss other metrics.  I wonder if this is how we will start our trader reviews in five years.

Can’t you as a trader do better than defining your success based on PnL?

Our desk uses the SMBU Performance Center powered by Tradervue to crunch our trading stats. Shouldn’t prop and independent traders be talking more specifically about our trading with more valuable measurements than PnL?

Some ideas:

1) Percentage of days stopped out
2) Win rate in trades
3) Ratio of average profit per trade to average loss per trade
4) Percentage of positive days
5) Percentage of days where gains are 2xs our intraday loss
6) Percentage of time spent in the trading zone (self-reported)
7) Measurement on picking the right stocks to trade

Present PnL may be a measure of present market conditions, an outsized gain, etc. Better measurements may tell you how well you are actually trading and the likelihood of your ability to sustain success.

Related Posts:

How to Review Your Trading After the Close

Are You Revenge Trading?

Evaluating Your Trading Results

“You can be better tomorrow than you are today!”

Mike Bellafiore is the Co-Founder of SMB Capital and SMBU, which provides trading education in stocks, options, forex and futures. Bella is the author of One Good Trade and The PlayBook.

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2 Comments on “PnL as the Outdated Trading Stat”

  1. 6) Percentage of time spent in the trading zone.

    I’m with you on the use of alt eval metrics. Could you explain this one a little further? Thanks.

  2. 8 Profit vs initial risk.
    If you risk 1% per trader with RR=2 but close earlier or sometimes later you want to measure what is your profit vs initial risk and compare that with RR at start of the trade.
    You can use that metric to adjust your trading.
    If it is the same doing well
    If it is less than you should stay longer or maybe drop your RR at first place
    If it is better than your initial RR is to conservative

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