Here’s a reader question from Rami A. (shared with permission):
Rami A:
I’m trying to create a day trading strategy. Which financial metrics should I consider, such as risk-reward ratio, Sharpe ratio, drawdown, etc., to determine if it’s a good one?
Dave:
It’s easy to overcomplicate things here for no real benefit, so I keep it super simple:
- Profit Factor
- Win Percent
- Total Profit
- Trades Per Day
And, of course, the most important factor is looking at the equity curve.
That’s it!
Why is the equity curve so important? Because it’s telling you a story that no metric can capture.
It’s telling you the pain you would have felt during those drawdowns.
If I had to choose just one “metric”, it would be the equity curve (by a mile).
When you find a smooth equity curve, it gives you a lot of flexibility in trading the strategy.
Thanks for the question, Rami!
-Dave
