Strategy Performance Insights
Interpreting and understanding all available performance metrics for the Trading Department is essential to success. By reviewing data points such as percent profitability, max drawdown, average length of trades, and more, we can accurately assess our current standings and make the necessary improvements.
What is Percent Profitability?
- The percent profitable metric is a measure of how likely it is that you will win money when trading. This can be calculated by dividing your number of winning trades over all the ones made during that time period and multiplying this result with 100%.
The percentage might not seem very informative at first, but if we take into account what type or magnitude an increase/decrease in profit could have on our overall portfolio then things become much clearer
What is Net Profit?
- An investors profits/losses in real time. The value shown is the total amount earned or spent, considering whether it's positive or negative based on sign of trade(s).
What is Gross Profit?
- The total profit for all trades generated by a strategy.
What is Gross Loss?
- The total amount of money that you have lost on all your losing trades.
What is Max Drawdown?
- Displays the greatest loss drawdown, i.e. the greatest possible loss the strategy had during its run compared to its highest profits.
What is Buy and Hold Return?
- This is the return achieved if all funds (initial capital) were used to buy this security when you first enter a trade, and then held it until your test period was over.
What is the Sharpe Ratio?
- Nobel Laureate, William Sharpe, introduced the Sharpe Ratio in 1966 under the name “reward-to-variability ratio”. The Sharpe Ratio is widely used by portfolio managers and individual traders to show how much risk was taken to achieve specific returns. The formula for the Sharpe ratio is SR = (MR - RFR) / SD, where MR is the average return for a period (monthly for a trading period of 3 or more months or daily for a trading period of 3 or more days), and RFR is the risk-free rate of return (by default, 2% annually. Can be changed with the "risk_free_rate" parameter of the "strategy()" function). SD is the standard deviation of returns. Thus, this formula yields a value that could be loosely defined as return per unit risked if we accept the premise that variability is risk. The higher Sharpe ratio, the smoother the equity curve. Having a smooth equity curve is an important objective for many traders.
What is the Sortino Ratio?
- Unlike the Sharpe ratio, which is calculated using only downside risk and reflects how well your investments performed compared to other propositions in similar environments (that had varying degrees of positive or negative performances), this new variation by default takes into account both upside as well as downside performance. The formula for computing SR = MR - RFR will give you an idea on what type portfolio might perform better given certain levels that are considered average returns over various periods/or days ranging from monthly up until 3 months max; however it's important note: If we're talking about daily trades then just use 2%.
What is Profit Factor?
- Amount made vs amount lost, including slippage, fees, and commissions.
- This is the measure of how profitable your trades were. A positive number means you made money, while a negative number means that someone else lost out on their trade with respect to what they would have received had it gone according to plan (this doesn't necessarily mean there was any loss at all). In general though; generally speaking when we're talking about equity markets - which represent investments in companies' stocks-whatever ratio falls between 1 and 0 will give investors an idea as far away from "perfect" balance between those two sides goes!