Performance quotient (PQ) is a measure of a trader’s profitability over a period of time, introduced by Paul Samuelson in 1967. It is calculated by dividing the trader’s total profits by their total losses, plus the risk capital. A higher PQ indicates that the trader is more profitable, while a lower PQ indicates that the trader is less profitable.
The formula for calculating PQ is:
PQ = (Total profits - Total losses) / Risk capital
- Total profits is the total amount of money made by the trader over the period of time being measured.
- Total losses is the total amount of money lost by the trader over the period of time being measured.
- Risk capital is the amount of money that the trader was willing to lose when they started trading.
PQ is a more comprehensive measure of a trader’s profitability than simply looking at their profits or losses. This is because it takes into account the amount of risk that the trader took. A trader who makes a lot of profits but also takes a lot of risks may not be as profitable as a trader who makes fewer profits but takes fewer risks.
PQ is also a more reliable measure of a trader’s skill than simply looking at their profits or losses over a short period of time. This is because market conditions can fluctuate significantly over short periods of time, and a trader who is profitable in one market condition may not be profitable in another. PQ takes into account the trader’s performance over a longer period of time, which helps to smooth out the effects of market fluctuations.
PQ is a valuable tool for traders of all levels of experience. It can be used to measure a trader’s performance, identify areas for improvement, and make better trading decisions.
Here are some of the benefits of using performance quotient:
- It can help you track your progress and identify areas where you can improve.
- It can help you compare your performance to other traders.
- It can help you make better trading decisions by providing you with a measure of your risk tolerance.
- It can help you stay motivated and focused on your trading goals.
If you are serious about trading, then you should track your performance quotient. It is a valuable tool that can help you become a better trader.