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📈 Performance & Return Metrics
1. Total Return

What it is: The total profit or loss generated over the backtest/live period, as a percentage.

Why it matters: Gives a raw idea of how much money the strategy made.

2. Annualized Return (CAGR)

What it is: The average yearly return assuming profits are reinvested.

Why it matters: Lets you compare strategies across different time frames.

3. Number of Trades

What it is: Total trades taken during the test period.

Why it matters: A small sample size (less than 100) may not be statistically reliable.

⚖️ Risk-Adjusted Metrics
4. Sharpe Ratio

What it is: Measures return per unit of total volatility.

Formula: (Strategy Return - Risk-Free Rate) / Std. Deviation of Returns

Why it matters: Higher Sharpe = better reward for risk taken. Ideal: more than 1.5

5. Sortino Ratio

What it is: Like Sharpe but considers only downside volatility (bad volatility).

Why it matters: More accurate for traders as it ignores harmless upside swings.

🧠 Strategy Logic Metrics
6. Win Rate

What it is: % of trades that ended in profit.

Why it matters: Useful for trader psychology and trade management.

High win rate + low reward = not always profitable.

7. Risk-Reward Ratio

What it is: Avg. Profit per Winning Trade ÷ Avg. Loss per Losing Trade.

Why it matters: Shows how much you win when you’re right vs lose when wrong.

Low win rate is fine if RR is high (e.g., 30% win rate with 1:5 RR).

8. Expectancy

What it is: Avg. profit per trade over the long run.

Formula:
Expectancy = (Win% × Avg Win) - (Loss% × Avg Loss)

Why it matters: True reflection of edge. Must be positive to be viable.

📉 Risk & Drawdown Metrics
9. Max Drawdown

What it is: Worst historical drop from a peak to a low.

Why it matters: Shows capital erosion risk. Important for emotional + financial survival.

10. Profit Factor

What it is: Total profit ÷ Total loss.

Why it matters: Measures efficiency.

PF more than 1.5 = good. PF less than 1 = losing system.

11. Drawdown Duration

What it is: How long it took to recover from the worst drawdown.

Why it matters: A 3-month drawdown is easier to tolerate than a 12-month one.

12. Time in Market / Exposure

What it is: % of time the strategy has an open position.

Why it matters: Higher exposure = higher risk to black swan or overnight events.

13. Risk of Ruin

What it is: Probability of blowing up your account.

Based on: Win rate, risk per trade, losing streak potential.

Why it matters: Should be close to zero. Otherwise, it’s gambling.

14. Slippage & Transaction Costs

What it is: Real-world costs (brokerage, taxes, order fills).

Why it matters: Ignoring this = fake profits in backtest.

🧪 Robustness & Reliability Metrics
15. Monte Carlo Simulation

What it is: Randomizes trade order and simulates thousands of alternate outcomes.

Why it matters: Shows how volatile or fragile the strategy is to randomness.

16. Out-of-Sample Testing

What it is: Testing the strategy on unseen data that wasn't used during optimization.

Why it matters: Verifies the strategy wasn’t curve-fitted to the past.

17. Maximum Losing Streak

What it is: Longest consecutive series of losing trades.

Why it matters: Helps you plan capital and manage emotions.

Eg: Can you survive a 10-trade losing streak without quitting?