Performance Report

A trading system performance report quantifies how a trading system has performed over a given period of time. It’s a way to evaluate the risk, reward and expectancy of a trading method.
I have shown a number of performance reports and used a number of terms that may be unfamiliar to some. Performance reports are used to measure trading strategies in stocks, bonds, stock markets ,currencies and commodities. Below is a glossary of some of the most common terms in a performance report, with a brief explanation of how I like to use the measurement.

Total Net Profit: Is simply the total amount of money made or lost from a strategy from the beginning of trading to the last date tested. Total Net Profit is the account balance after all the trades have been made. A positive number indicates a positive expectancy and means that you have made money. A negative number means that the strategy has lost money, and the strategy should be reconsidered.

Total Trades: The total number of trades the strategy made.

Average Trade: The average trade is calculated using the Net Profits(loss) and dividing by the total number or trades made. A higher average is preferred and indicates that the strategy balances wins and losses to your favor. To normalize systems, I like to divide the average trade by avg # of days in a trade when comparing strategies, this will show what the average 1 day performance is and can be easily compared across systems trading the same market.

Avg # of Bars in Trade: This number shows the average duration of all winning and losing trades in terms of quantity of days in a trade. I like systems that have high average trades and low avg # of bars in trade.

Average Trades per Year: Using the total trades divided by the number of years the strategy was tested, results in this value.

Max Closed-Out Drawdown: The drawdown represents a maximum peak to trough drawdown based on closing prices. This number is an important risk measurement. The lower the Max closed out drawdown the better a system and more linear the equity curve. To normalize systems I like to divide the total net profit by max closed out drawdown.

Current Streak: Provides the number of most recent trade wins or losses. For example 2 winning trades in a row.

Profit Factor($Wins/$Losses): This is one of the most important performance measurements. Profit Factor gives the ratio of gross profit compared to gross loss. Having a profit factor greater than 1.00 signifies the system makes money and there is more gross profit than gross loss. Systems that have a profit factor over 2 are very good and have made 2 times more money in profits than they have lost.

Winning Percentage: This displays the percentage of time that the strategy made a profitable trade. The value can be misleading and other factors should be used in evaluating the strategy. The reason I like strategies that have a high win rate is because they are easier to trade emotionally.

Payout Ratio(Avg Win/Los): By dividing the average win by the average loss we can see if the average win is larger than the average loss.

Z-Score (W/L Predictability): This value is calculated to show the strategy’s tendency to win or lose in streaks. This number measure statistical significance.

Percent in the Market: Represents the percentage of time during the trading year in which there is an open position.

Max Intraday Drawdown: Unlike closed-out drawdown, this value indicates the drawdown during the trading day. The account would need to be able to sustain this loss in order to remain profitable. This number is an important risk measurement. The lower the Max closed out drawdown the better a system and more linear the equity curve. To normalize systems I like to divide the total net profit by max closed out drawdown.