Measuring Your Trading Performance With The Gain to Pain Ratio

by | May 21, 2017 | Systematic Trading | 2 comments

As a DIY investor, I am a strong believer in measuring my trading/investing performance. As the saying goes, if you don’t measure it you won’t improve it.

I just started a subscription to Real Vision TV and began with the Peter Brandt series of videos. Peter Brandt who considers the Sharpe Ratio to be worthless for evaluating trading performance prefers, among a small number of other metrics, the Gain to Pain Ratio which was developed by Jack Schwager. In Brandt’s view, a Gain to Pain Ratio of 1 or better is quite good, a ratio of 2 or better is excellent and a ratio of 3 or better is world class.

The Gain to Pain Ratio is calculated by dividing the sum of monthly portfolio gains by the absolute value of monthly portfolio losses. Let’s calculate my Gain to Pain Ratio for my own ETF momentum trading system.

The sum of all the monthly returns is 10.74.

The absolute value of the losses (-1.80, -1.33, -2.10) is 5.23.

My Gain to Pain Ratio is 10.74 / 5.23 = 2.05

There is one proviso about the Ratio that Jack Schwager points out which we should all be aware of. You can read about that here.

My next post will be about the second metric that Peter Brandt uses which is Profit Ratio.

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Joe
Joe
4 years ago

So starting on 9/27/16 my monthly returns are:
-1.14% Oct 2016
1.01%
0.17%
1.84%
2.10%
0.88%
2.01%
1.32%
0.64%
1.30%
0.53%
0.06% 9/30/2017
My GPR comes out to 9?