About Lesson
Whether you’re day trading, swing trading, or a long-term investor, you should always measure your performance. Otherwise, how would you know if you’re doing well? One of the great benefits of trading is that you can rigorously measure how you’re doing with objective metrics. This can greatly help eliminate emotional and cognitive biases.
So, how is this useful? Well, the human mind tends to build narratives around everything as it tries to make sense of the world. However, you can’t “hide” from numbers. If you’re producing negative returns, something should be changed in your strategy. Similarly, if you feel like you’re doing well but the numbers aren’t reflecting that, you’re probably a victim of your biases.
We’ve discussed risk management, position sizing, and setting a stop-loss. But how do you measure the performance of your investments? And how can you compare the performance of multiple investments? This is where the ROI calculation comes in handy. In this article, we’ll discuss how to calculate return on investment (ROI).