How to Read Backtest Performance Metrics Without Delusion
Backtesting is an invaluable tool for quantitative trading, but stats can be misunderstood without proper context. Three key metrics — Win Rate, Average Return per Trade, and Cumulative Return — tell the complete statistical story.
Evaluating Key Backtest Metrics
- Win Rate (WR%): Percentage of profitable trades. An 81% WR means 13 out of 16 trades closed positive. Always evaluate Win Rate alongside average win vs. average loss sizes.
- Average Return per Trade (Avg/Trade): The single most reliable indicator of strategy expectancy. Fresh Rider's +18.1% avg/trade reflects strong statistical edge.
- Cumulative Return: Large total return figures can stem from high trade frequency rather than individual trade edge. Always review sample size alongside total PnL.
💡 Key Takeaway: Evaluate strategies primarily by Average Return per Trade and Worst Drawdown. High average returns paired with small maximum losses signal true quantitative edge.