How to read backtest results
Understand your backtest — net P&L, win rate, max drawdown and the trade log — so you know if a strategy is actually worth trading.
A backtest gives you numbers — here's how to read them so you don't get fooled by a pretty equity curve.
The key metrics
- Net P&L — total profit/loss over the period. Positive is necessary but not sufficient.
- Win rate — % of winning trades. A high win rate can still lose money if losers are big.
- Average win vs average loss — this, with win rate, tells you the real edge.
- Max drawdown — the biggest peak-to-trough fall. This is what tests your nerve; a great return with a brutal drawdown is often un-tradeable.
- Number of trades — too few and the results are luck, not edge.
What "good" looks like
A robust strategy is consistently profitable across different periods, with a drawdown you can stomach and enough trades to trust. Beware curve-fitting — a strategy tuned perfectly to the past often fails in future.
Next step
Forward-test the winner with paper trading on live markets before real money.
FAQ
Which metric matters most?
Max drawdown alongside net P&L — a strategy you can't hold through its worst stretch is one you won't actually trade.
Is a high win rate always good?
Not on its own — if the few losers are huge, you can still lose overall. Compare average win vs average loss.
How many trades make a backtest reliable?
The more the better — a handful of trades is luck, not a proven edge.