At Anny.trade, we understand the importance of ranking trading systems in the marketplace while providing full transparency about risk and reward. That's why we've introduced the "Profitability Index," a powerful evaluation metric that takes our assessment to the next level.
The Profitability index is calculated as the "Achieved success ratio" minus the "Break-even ratio":
- Achieved success ratio: This represents the success ratio achieved by the signal, indicating the proportion of signals that hit target 1 before reaching the stop-loss level.
- Break-even ratio: This is the required success ratio needed to break even, considering the average risk/reward ratio of the signals.
Simply showing the success ratio is not enough because recovering from a stop-loss requires multiple successful trades, and some signal providers may manipulate target 1 to boost their ranking in the marketplace.
To provide a more comprehensive picture of a signal's profitability, we combine the risk/reward ratio with the success rate. For instance:
- If target 1 is 4% and the stop-loss is -4%, the risk/reward (R/R) ratio is 1:1. To be profitable, the success ratio must be above 51%.
- Decreasing target 1 to 1% while keeping the stop-loss at -4%, the R/R ratio becomes 1:0.2. Now, a success ratio of 80% is required to break even.
The higher the profitability index, the more profitable the service is relative to its risk. If the index is negative, the achieved success ratio is not sufficient to break even.
It's important to note that the profitability index does not necessarily indicate the service with the most profit but rather the one with the best profitability concerning risk.
For traders and signal admins, these metrics offer valuable insights and convenient backtesting options for their trading strategies.
As an investor, the numbers will show that a success ratio of 60% can sometimes be more advantageous than one of 90%. In such cases, you need to be comfortable with trades hitting the stop-loss more often, knowing that when gains come, recovery is swift.
Check this insight when opening your next trade:
In summary, beyond technical analysis, the key to success lies in effective risk management. With the Profitability index, we aim to empower traders and investors to make more informed decisions and achieve greater success in their trading journey.