Money Management Metrics
Master the numbers that define trading success
Win Rate (Hit Rate)
Formula
What it tells you
Win rate shows the percentage of your trades that are profitable. While important, it's not the only metric that matters. You can be profitable with a 40% win rate if your winners are much larger than your losers.
Example:
If you made 100 trades and 45 were profitable:
Win Rate = (45/100) × 100 = 45%
Key Insights
- Professional traders often have win rates between 40-60%
- High win rate doesn't guarantee profitability
- Focus on expectancy, not just win rate
Risk-Reward Ratio
Formula
What it tells you
This ratio compares your average winning trade to your average losing trade. A ratio of 2:1 means you make ₹2 for every ₹1 you risk.
Example:
Average winning trade: ₹5,000
Average losing trade: ₹2,000
Risk-Reward Ratio = 5,000/2,000 = 2.5:1
Key Insights
- Minimum recommended ratio is 1.5:1
- Higher ratios allow for lower win rates
- With 2:1 ratio, you can be profitable with just 35% win rate
Expectancy
Formula
What it tells you
Expectancy tells you how much you can expect to make (or lose) per trade on average. This is the most important metric for evaluating a trading system.
Example:
Win Rate: 45%, Average Win: ₹3,000
Loss Rate: 55%, Average Loss: ₹1,500
Expectancy = (0.45 × 3,000) - (0.55 × 1,500) = ₹525 per trade
Key Insights
- Positive expectancy is essential for long-term success
- Higher expectancy allows for more aggressive position sizing
- Track expectancy over at least 30-50 trades
Maximum Drawdown
Measures the largest peak-to-trough decline in your account value.
Max DD = (Peak - Trough) / Peak × 100
- • Keep below 20-30%
- • 50% drawdown needs 100% gain to recover
- • Reduce size during drawdowns
Sharpe Ratio
Measures risk-adjusted returns - excess return per unit of risk.
SR = (Return - Risk-Free) / StdDev
- • < 1.0 = Poor returns
- • 1.0-2.0 = Good returns
- • > 2.0 = Excellent returns
Profit Factor
Shows how much you make for every rupee you lose.
PF = Gross Profit / Gross Loss
- • Above 1.5 is good
- • Above 2.0 is excellent
- • Below 1.0 means losing money
Recovery Factor
Shows how well your system recovers from drawdowns.
RF = Net Profit / Max Drawdown
- • Above 3.0 is good
- • Shows system resilience
- • Higher = smoother equity curve
Quick Reference Table
| Metric | Poor | Acceptable | Good | Excellent |
|---|---|---|---|---|
| Win Rate | < 30% | 30-40% | 40-55% | > 55% |
| Risk-Reward | < 1:1 | 1:1 - 1.5:1 | 1.5:1 - 2:1 | > 2:1 |
| Max Drawdown | > 40% | 30-40% | 20-30% | < 20% |
| Sharpe Ratio | < 0.5 | 0.5 - 1.0 | 1.0 - 2.0 | > 2.0 |
| Profit Factor | < 1.0 | 1.0 - 1.3 | 1.3 - 1.8 | > 1.8 |