Trading Performance: Strategy Metrics And Backtest

Trading performance and strategy metrics are important parameters to evaluate the quality of your trading strategy + both for your live trading strategy or if you are backtesting. Just looking at the end result, the CAGR or the annual returns, might be very misleading. If you’re a short-term trader we are pretty confident in saying that most traders would abandon a strategy if the drawdowns are too big no matter how high returns. This is why you need to look at strategy and system performance metrics. You need to measure your trading performance.

This article looks at several trading strategies and system performance metrics: the equity curve, max drawdown, win ratio, Sharpe Ratio, profit factor, CAR/MDD, the RAR/MDD, and the Ulcer Index. There are many more metrics, but we believe these should offer a very good background on where to look when you develop trading strategies and systems.

Trading Performance and Strategy Metrics don’t need to be complex

Trading Performance and Strategy Metrics are not complex. As a matter of fact, you get a very long way by using common sense and knowing your own limits. As we have explained many times, street smarts beat book smarts in trading!

Nevertheless, it might pay off to know a little about the different performance metrics that most trading software displays after you run a backtest.

Below is how a backtest system report looks i