Question 1

Total Return (%)

Accepted Answer

Percentage return on initial deposit. ``` Total Return = (Final Balance - Deposit) / Deposit × 100 ```

Question 2

Profit Factor

Accepted Answer

Ratio of gross profit to gross loss. Above 1.0 means profitable. ``` Profit Factor = Gross Profit / |Gross Loss| ``` | Value | Interpretation | |-------|---------------| | 3.0 | Excellent (verify not overfitted) |

Question 3

Win Rate

Accepted Answer

Percentage of trades that were profitable. ``` Win Rate = Winning Trades / Total Trades × 100 ``` Win rate alone doesn't determine profitability. A 30% win rate with 5:1 reward/risk is more profitable than a 70% win rate with 0.3:1 reward/risk.

Question 4

Expectancy

Accepted Answer

Average expected profit per trade. ``` Expectancy = (Win Rate × Avg Win) - (Loss Rate × Avg Loss) ``` Positive expectancy = strategy has an edge over time.

Question 5

Max Drawdown (%)

Accepted Answer

Largest peak-to-trough decline in account balance. ``` Max Drawdown = (Peak Balance - Trough Balance) / Peak Balance × 100 ``` | Value | Risk Level | |-------|-----------| | 30% | Very high — most traders can't tolerate this |

Question 6

Sharpe Ratio

Accepted Answer

Risk-adjusted return — higher is better. Measures return per unit of volatility. ``` Sharpe = Mean(Trade Returns) / StdDev(Trade Returns) ``` | Value | Interpretation | |-------|---------------| | 3.0 | Excellent (may indicate overfitting with few trades) |

Question 7

Recovery Factor

Accepted Answer

How quickly the strategy recovers from drawdowns. ``` Recovery Factor = Total Net Profit / Max Drawdown (absolute $) ``` Higher = better. A value of 5+ means the strategy generates 5× its worst drawdown in profit.

Question 8

MFE (Max Favorable Excursion)

Accepted Answer

The highest unrealized profit a trade reached before closing. Shows how much profit was "on the table."

Question 9

MAE (Max Adverse Excursion)

Accepted Answer

The deepest unrealized loss a trade reached before closing. Shows how much stress the trade endured.

Question 10

Average Win / Average Loss

Accepted Answer

``` Avg Win = Total Profit from Winners / Number of Winners Avg Loss = Total Loss from Losers / Number of Losers Payoff Ratio = Avg Win / Avg Loss ```

Question 11

Trade Count

Accepted Answer

Total number of completed trades. More trades generally means more statistical significance. | Trades | Confidence | |--------|-----------| | 500 | High — robust sample |

Question 12

Total Commission

Accepted Answer

Sum of all trading fees. Important for high-frequency strategies where fees can erode profits.

Question 13

Metric Relationships

Accepted Answer

Understanding how metrics relate to each other: | If... | Then... | |-------|---------| | High win rate + low PF | Average wins are too small relative to losses | | Low win rate + high PF | Few wins but they're much larger than losses | | High Sharpe + few trades | May be overfitted — not enough data | | Low drawdown + low return | Strategy is too conservative | | High return + high drawdown | High risk for the reward | > **Tip:** No single metric tells the full story. Always look at metrics tog

Question 14

FAQ

Accepted Answer

**Q: What's the most important metric?** A: There's no single answer, but Profit Factor and Max Drawdown together give the best quick assessment. A PF > 1.5 with DD < 20% is a solid starting point. **Q: Can a low win rate strategy be profitable?** A: Absolutely. Trend-following strategies often have 30-40% win rates but large average wins that outweigh frequent small losses. **Q: Why might Sharpe be unreliable?** A: With very few trades (< 30), Sharpe can be misleadingly high due to insufficient

Question 15