Performance Metrics
Stratifyre calculates over 70 performance metrics for every backtest. This page serves as a reference — organized by category, with a definition, interpretation, and general benchmark for each metric.
You do not need to memorize all of these. Most traders focus on a handful of metrics that matter for their specific goals. But having the full reference available helps when you want to dig deeper.
Return Metrics
Section titled “Return Metrics”These metrics describe how much money your strategy made (or lost).
Total Return
Section titled “Total Return”What it is: The percentage change from your starting capital to your ending capital.
How to interpret it: A total return of 85% means that $100,000 grew to $185,000. Simple, but does not account for the time it took.
Benchmark: Depends entirely on the time period. Compare against a buy-and-hold benchmark over the same dates.
CAGR (Compound Annual Growth Rate)
Section titled “CAGR (Compound Annual Growth Rate)”What it is: Your annualized return, adjusted for compounding. It answers: “If my strategy grew at a steady rate each year, what would that rate be?”
How to interpret it: CAGR normalizes returns across different time periods. A strategy that made 50% over 3 years has a CAGR of about 14.5%, while one that made 50% over 10 years has a CAGR of about 4.1%.
Benchmark: The S&P 500 has a historical CAGR of roughly 10% (before inflation). A strategy with a CAGR meaningfully above 10% is outperforming the market.
Annual Return
Section titled “Annual Return”What it is: Your return for each individual calendar year in the backtest.
How to interpret it: Useful for spotting years where the strategy struggled or excelled. A strategy with a great CAGR but one year at -40% is riskier than it looks on average.
Monthly Return
Section titled “Monthly Return”What it is: Your return for each individual month, often displayed as a heatmap.
How to interpret it: Helps identify seasonal patterns and consistency. Also reveals how many losing months you should expect.
Best/Worst Day, Month, Year
Section titled “Best/Worst Day, Month, Year”What it is: The single best and worst return over each time period.
How to interpret it: Shows the extremes. If your worst month was -15%, you need to be prepared for that (or worse) in live trading.
Risk Metrics
Section titled “Risk Metrics”These metrics quantify how much risk your strategy takes to achieve its returns.
Maximum Drawdown
Section titled “Maximum Drawdown”What it is: The largest peak-to-trough decline in the equity curve, expressed as a percentage.
How to interpret it: A max drawdown of 25% means your account dropped 25% from its highest point before recovering. This is the single most important risk metric for most traders.
Benchmark: Under 20% is generally comfortable. Under 10% is conservative. Above 30% is aggressive and psychologically difficult to endure.
Average Drawdown
Section titled “Average Drawdown”What it is: The average depth of all drawdown episodes.
How to interpret it: If max drawdown is the worst case, average drawdown tells you what a typical bad stretch feels like.
Maximum Drawdown Duration
Section titled “Maximum Drawdown Duration”What it is: The longest time the equity curve spent below a previous peak, in calendar days or bars.
How to interpret it: A short, deep drawdown might be easier to stomach than a shallow drawdown that lasts 18 months. Duration matters.
Sharpe Ratio
Section titled “Sharpe Ratio”What it is: Excess return (above the risk-free rate) divided by the standard deviation of returns.
How to interpret it: Measures how much return you are getting per unit of total volatility. Higher is better.
Benchmark:
| Sharpe | Interpretation |
|---|---|
| Below 0.5 | Poor risk-adjusted return |
| 0.5 - 1.0 | Acceptable |
| 1.0 - 2.0 | Good |
| 2.0 - 3.0 | Very good |
| Above 3.0 | Exceptional (verify it is not overfit) |
Sortino Ratio
Section titled “Sortino Ratio”What it is: Like Sharpe, but uses only downside deviation instead of total standard deviation.
How to interpret it: Since upside volatility is desirable, the Sortino ratio is arguably a fairer measure of risk-adjusted return than Sharpe. A strategy with large gains and small losses will have a much better Sortino than Sharpe.
Benchmark: Same scale as Sharpe but typically higher. Above 2.0 is good.
Calmar Ratio
Section titled “Calmar Ratio”What it is: CAGR divided by maximum drawdown.
How to interpret it: Directly answers: “How much annual return am I getting per unit of worst-case drawdown?”
Benchmark: Above 1.0 is decent. Above 2.0 is good. Above 3.0 is excellent.
Ulcer Index
Section titled “Ulcer Index”What it is: A measure of downside risk that accounts for both the depth and duration of drawdowns. It gives more weight to longer, deeper drawdowns than max drawdown alone.
How to interpret it: Lower is better. Unlike standard deviation, the Ulcer Index only considers the “pain” of being below a previous peak — not the “pleasure” of upside volatility.
Benchmark: Under 5 is good for a daily-bar strategy. Under 10 is acceptable. Above 15 suggests significant pain periods.
VaR (Value at Risk)
Section titled “VaR (Value at Risk)”What it is: The maximum expected loss over a given time period at a given confidence level. For example, a 95% daily VaR of -2% means you would expect to lose no more than 2% in a single day, 95% of the time.
How to interpret it: VaR tells you how bad a “normal” bad day looks. It does not tell you how bad a truly catastrophic day could be — that is what CVaR is for.
Benchmark: Depends on your strategy’s timeframe and leverage. Compare against the VaR of a simple buy-and-hold position in the same instrument.
CVaR (Conditional Value at Risk)
Section titled “CVaR (Conditional Value at Risk)”What it is: Also called Expected Shortfall. It is the average loss on days that exceed the VaR threshold. If VaR tells you “the worst 5% of days lose at least this much,” CVaR tells you “on those worst days, the average loss is this much.”
How to interpret it: CVaR captures tail risk — the truly bad days. A strategy with a VaR of -2% but a CVaR of -8% has much fatter tails (more extreme bad days) than one with a CVaR of -3%.
Volatility (Annualized)
Section titled “Volatility (Annualized)”What it is: The standard deviation of returns, annualized.
How to interpret it: Higher volatility means larger swings in both directions. Most traders prefer lower volatility for the same level of return.
Benchmark: The S&P 500 typically has annualized volatility around 15-20%. A strategy with volatility below 10% is relatively smooth.
What it is: How much your strategy’s returns move in relation to a benchmark (usually the S&P 500). A beta of 1.0 means your strategy moves in lockstep with the market. A beta of 0.5 means it moves half as much.
How to interpret it: Low beta (close to 0) means your strategy’s returns are relatively independent of the overall market. This is desirable for diversification.
Trade Statistics
Section titled “Trade Statistics”These metrics describe the characteristics of your individual trades.
Win Rate
Section titled “Win Rate”What it is: The percentage of trades that were profitable.
How to interpret it: A higher win rate is psychologically comfortable but is not required for profitability. Many successful trend-following strategies have win rates below 40% — they make up for it with large winners.
Benchmark: Depends on strategy type. Mean reversion strategies often have 55-70% win rates. Trend-following strategies might have 30-45%.
Profit Factor
Section titled “Profit Factor”What it is: Total gross profit divided by total gross loss (as an absolute value).
How to interpret it: A profit factor of 2.0 means the strategy made $2 for every $1 it lost. Above 1.0 is profitable.
Benchmark:
| Profit Factor | Interpretation |
|---|---|
| Below 1.0 | Losing money |
| 1.0 - 1.5 | Marginal |
| 1.5 - 2.0 | Good |
| 2.0 - 3.0 | Very good |
| Above 3.0 | Excellent (verify with Monte Carlo) |
Expectancy
Section titled “Expectancy”What it is: The average dollar amount you expect to make (or lose) per trade. Calculated as: (Win Rate x Average Win) - (Loss Rate x Average Loss).
How to interpret it: Positive expectancy means the strategy has a mathematical edge. The higher the better, but also consider how many trades it generates — a small edge applied over hundreds of trades can be very profitable.
SQN (System Quality Number)
Section titled “SQN (System Quality Number)”What it is: A measure of strategy quality developed by Van Tharp. It is the expectancy divided by the standard deviation of trade returns, multiplied by the square root of the number of trades.
How to interpret it:
| SQN | Rating |
|---|---|
| Below 1.6 | Poor |
| 1.6 - 1.9 | Below average |
| 2.0 - 2.4 | Average |
| 2.5 - 2.9 | Good |
| 3.0 - 5.0 | Excellent |
| 5.0 - 7.0 | Superb |
| Above 7.0 | Possibly overfit — verify |
Kelly Criterion
Section titled “Kelly Criterion”What it is: The theoretically optimal fraction of your capital to risk on each trade, based on your win rate and average win/loss ratio.
How to interpret it: The Kelly percentage maximizes long-term growth but results in aggressive position sizing with large drawdowns. Most practitioners use “half Kelly” or less for a smoother ride.
Average Win / Average Loss
Section titled “Average Win / Average Loss”What it is: The average dollar profit on winning trades and the average dollar loss on losing trades.
How to interpret it: The ratio between these two (average win divided by average loss) is the reward-to-risk ratio. A strategy with a 40% win rate needs a reward-to-risk ratio above 1.5 to be profitable.
Largest Win / Largest Loss
Section titled “Largest Win / Largest Loss”What it is: Your single best and worst trade.
How to interpret it: If your total profit is highly dependent on one or two outlier trades, the strategy may not be robust. Check whether removing the best trade would still leave the strategy profitable.
Average Trade Duration
Section titled “Average Trade Duration”What it is: The mean holding time across all trades.
How to interpret it: Confirms that your strategy trades on the timeframe you intended. A strategy designed for swing trading (days to weeks) that averages 3-hour trades may have a rule issue.
Number of Trades
Section titled “Number of Trades”What it is: Total completed round-trip trades.
How to interpret it: More trades means more statistical significance. Fewer trades means the results are less reliable.
Advanced Metrics
Section titled “Advanced Metrics”These metrics provide deeper analytical insight.
MAE (Maximum Adverse Excursion)
Section titled “MAE (Maximum Adverse Excursion)”What it is: The worst unrealized loss experienced during each trade before it was closed. Reported as an average and/or distribution across all trades.
How to interpret it: MAE helps you optimize stop-loss levels. If most winning trades never dip more than 3% underwater, placing your stop at -5% might be appropriate. If many winners dip 8% before recovering, a tight stop will kill them.
MFE (Maximum Favorable Excursion)
Section titled “MFE (Maximum Favorable Excursion)”What it is: The best unrealized gain experienced during each trade before it was closed.
How to interpret it: MFE helps you optimize profit targets. If your average MFE is 10% but your average winning trade closes at only 4%, you may be exiting too early and leaving money on the table.
MAE/MFE Scatter Plot
Section titled “MAE/MFE Scatter Plot”What it is: A chart plotting each trade’s MAE against its MFE.
How to interpret it: This visualization shows the relationship between how far trades go against you versus how far they go in your favor. It can reveal natural clustering that suggests optimal stop and target levels.
Trade Duration Distribution
Section titled “Trade Duration Distribution”What it is: A histogram showing how long trades are held.
How to interpret it: Helps you understand the shape of your strategy’s holding periods. A strategy with most trades lasting 2-5 days but a few lasting 60+ days might have an issue with exit signals.
Recovery Factor
Section titled “Recovery Factor”What it is: Net profit divided by maximum drawdown.
How to interpret it: Measures how efficiently the strategy recovers from drawdowns. Higher is better. A recovery factor of 5.0 means the strategy made 5 times its worst drawdown in total profit.
Payoff Ratio
Section titled “Payoff Ratio”What it is: Average winning trade divided by average losing trade.
How to interpret it: Combined with win rate, this determines profitability. Higher payoff ratios allow for lower win rates.
Exposure
Section titled “Exposure”What it is: The percentage of time the strategy is in the market (has an open position).
How to interpret it: A strategy that is only in the market 30% of the time has 70% of its capital sitting idle. This can be a feature (less risk) or a cost (opportunity cost). Compare returns against exposure to get a sense of capital efficiency.
Consecutive Wins / Consecutive Losses
Section titled “Consecutive Wins / Consecutive Losses”What it is: The longest streak of consecutive winning trades and consecutive losing trades.
How to interpret it: Long losing streaks test your discipline. If the backtest shows 12 consecutive losers, ask yourself: would you still follow the system after the 10th loss in a row?
Using Metrics Effectively
Section titled “Using Metrics Effectively”No single metric tells the whole story. Here are some practical guidelines:
For overall quality: Look at CAGR, Sharpe ratio, and profit factor together. A strategy needs to make money (CAGR), do so efficiently (Sharpe), and have a healthy edge per trade (profit factor).
For risk assessment: Focus on max drawdown, max drawdown duration, and CVaR. These tell you how bad things can get and how long recovery takes.
For trade-level analysis: Win rate, expectancy, and MAE/MFE give you insight into how individual trades behave and where to optimize stop-loss and take-profit levels.
For robustness: A high SQN combined with a large number of trades and passing Monte Carlo Simulation tests is a strong indicator of a robust strategy.