Profitability
Profitability (also called salability or saleability) is a technical analysis term used to compare performances of different trading systems or different investments within one system. Note, it is not simply another word for profit. There are varying definitions for it, some as simple as the expected or average ratio of revenue to cost for a particular investment or trading system. Others can be complex or counter-intuitive.
The following definition was published in the journal Technical Analysis of Stocks & Commodities Magazine:[1]
- Profitability = nProfits/nTrades - 1/(1+aveProfit/aveLoss)
This is computed for each system or investment being compared over the same period long enough to include significant "ups" and "downs". A suitable period is something like the last 5 to 20 years.
References
- ^ Harris, Michael (September 2002). "Improve Your System With The Profitability Rule". (incomplete excerpt) Technical Analysis of Stocks & Commodities Magazine.
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