For the risk-based trader, compliance — not profits and losses — is the most important metric to track. Compliance simply asks the question, “Have I followed my rules on this trade?” For example, measuring trade-execution compliance will identify the gap between planned trade execution and actual trade execution. In other words, answer the question of whether the trade should have been executed in the first place, and if so, whether you did it correctly.”

Measuring compliance doesn’t have to be a complicated process. Displaying a dashboard-like visual on your workstation is simple way to keep track of the important trade metrics you need to assess. The example in the chart below shows a standard “compliance dashboard.” Notice how the tool displays only key compliance metrics — setup compliance, entry precision, filter/conditional rules, daily loss-limit compliance, and journal review compliance. Such key performance indicators (KPIs) should be measured against benchmarks that reflect a standard of excellence or a personal trading goal.  Aggressive traders can raise the expectation bar by setting benchmarks that exceed compliance. Continue reading "The Most Important Trading Metric: Compliance" →