Learn how to interpret backtest results, identify what's working (and what's not), and make data-driven decisions to improve your trading strategies.
Time required: 15 minutes
Prerequisites: At least one completed backtest
Start with the fundamental question: did it make money?
+12.5%Positive is good, but compare to SPY benchmark. If SPY returned +15%, you underperformed.
1.4Risk-adjusted returns. Above 1.0 is acceptable, above 1.5 is good.
Critical metric: Can you handle -18% loss emotionally? If not, strategy is too risky regardless of returns.
Low win rate (40%) is fine if avg win is 2x avg loss. High win rate (70%) with small wins and big losses is dangerous.
Fix: Relax entry conditions, extend date range, reduce position size
Fix: Tighten stop losses, add trend filters, reduce position size
Fix: Add 200 MA filter, test on bear market periods, include stop losses