Profit/Loss Ratio

Being an active trader is like being a professional gambler. You win some...you lose some. The key is to win more when you win than you lose when the bet turns sour. The profit loss ratio helps keep that score.

Take the average amount you gain when you have a winning trade. Then divide that by the average loss you post when you have a stinker. The result gives you the profit/loss ratio.

Hopefully, your average gain is far outstripping your average loss. The higher the ratio, the better you're doing on that front. A small ratio, or a ratio below 1.0...and you should rethink your strategy.