** Strategy Analysis Tab **

** Strategy Performance Summary**

** Net Profit - ** The overall dollar profit or loss achieved by the trading strategy in the test period.

Note. If you are working with an investment instrument using leverage, Return on Account plays a more important part in strategy evaluation.

** Gross Profit - ** The total sum of every profitable trade generated by a strategy.

** Gross Loss - ** The total sum of every losing trade generated by a strategy. This characteristic of a strategy is most important, yet often overlooked. It should be noted that net profit increases not only when gross profit improves, but also when gross loss is reduced. Analyzing and working over losing trades is an extremely important part of trading strategy analysis.

** Adjusted Net Profit - ** The difference between the adjusted gross loss and the adjusted gross profit. These adjusted profit and loss values are meant to highlight losses over profits to represent a worst case scenario - so if even these adjusted values are sufficient for trading the strategy, then in real trading the results should be even better.

** Adjusted Gross Profit - ** This figure cuts down the winning trades by calculating the total number of winning trades minus its square root, multiplied by the strategies average winning trade profit in $ - so if even these adjusted values are sufficient for trading the strategy, then in real trading the results should be even better.

** Adjusted Gross Loss - ** This figure increases losing trades by adding to the total number of losing trades its square root, multiplied by the strategies average losing trade loss in $ - so if even these adjusted values are sufficient for trading the strategy, then in real trading the results should be even better.

** Select Net Profit - ** The modified the Net Profit (with all outlying trades, both positive and negative, removed). The final value thus indicates the net profit for standard trades.

Note. Strategies that depend on outlier trades heavily will have most unreliable values in this field. A trade can be considered an outlier when its profit/loss ratio is more than three standard deviations away from the average profit/loss ratio.

** Select Gross Profit - ** This field adjusts the Gross Profit by subtracting the results of positive outlier trades from total profitable trades (Gross Profit).

Note. Strategies that depend on outlier trades heavily will have most unreliable values in this field. A trade can be considered an outlier when its profit/loss ratio is more than three standard deviations away from the average profit/loss ratio.

** Select Gross Loss - ** This field adjusts the Gross Loss value by subtracting negative outlier trades from total losing trades (Gross Loss).

Note. Strategies that depend on outlier trades heavily will have most unreliable values in this field. A trade can be considered an outlier when its profit/loss ratio is more than three standard deviations away from the average profit/loss ratio.

** Account Size Required - ** The amount of money you must have in your account to trade the strategy. The Total Net Profit should always be compared with Account Size Required: the bigger the net profit compared to the Account Size Required, the better the return on investment will be.

Note. The absolute value is the positive equivalent of any number whether it is positive or negative. Account size required is only applicable when testing strategies that buy or sell futures contracts because the margin is specified in a per contract/share basis in the costs tab when formatting strategies.

** Return on Account - ** The sum of money you would make compared to the sum of money required to trade the strategy, after considering the margin and margin calls. This value is calculated by dividing the net profit by the account size required.

For leverage trading this value is more important than the Total Net Profit (e.g., buy or sell futures contracts or stocks on margin). When trading using leverage, you must a sizable margin deposit. The margin size is a certain percent of the overall transaction cost. In addition, when trading on leverage, you need sufficient money to counteract equity dips - the same as in futures and stock trading is named margin calls.

** Avg Monthly Return - ** Displays the average amount of money return of the Total Net Profit to the initial starting capital for a month, (including commissions and slippage if specified), during the specified period.

** Monthly Return StdDev - ** Displays the standard deviation of the average percentage return of the Total Net Profit to the initial starting capital for a month during the specified period.

The standard deviation of a probability distribution is defined as the square root of the variance of a data set.

** Return on Initial Capital - ** Return on Initial Capital displays the percentage return of the Total Net Profit to the initial starting capital, (including commissions and slippage if specified), during the specified period. Return on Initial Capital = Total Net Profit divided by Initial Capital.

** Max Strategy Drawdown - ** Displays the greatest loss drawdown, from the previous highest equity run-up, bar to bar looking across all trades, during the specified period. If a new bar equity run-up high occurs, the low equity value is reset to 0 so that the next maximum drawdown can be calculated from that point.

You can roughly see this value on a detailed equity curve graph by looking from the highest peaks to the lowest peaks moving forward.

** Max Strategy Drawdown (%) - ** Displays the greatest loss drawdown, from the previous highest equity run-up, bar to bar looking across all trades, during the specified period. If a new bar equity run-up high occurs, the low equity value is reset to 0 so that the next maximum drawdown can be calculated from that point.

You can roughly see this value on a detailed equity curve graph by looking from the highest peaks to the lowest peaks moving forward.

** Max Close to Close Drawdown - ** Displays the greatest loss drawdown, from the previous highest equity run-up, closed trade to closed trade looking across all trades, during the specified period. If a new closed trade equity run-up high occurs we reset the low equity value to 0, looking for the next maximum drawdown from that point.

** Max Close to Close Drawdown (%) - ** Displays the greatest loss drawdown, from the previous highest equity run-up, closed trade to closed trade looking across all trades, during the specified period. If a new closed trade equity run-up high occurs we reset the low equity value to 0, looking for the next maximum drawdown from that point.

** Return on Max Str Drawdown - ** The strategies Net Profit divided by its Maximum Strategy Drawdown.

Note. This is the same as Return on Account if you do not take margin into account.

** Profit Factor - ** The dollars amount a trading strategy made for every dollar it lost. This value is calculated by dividing gross profits by gross losses.

** Adjusted Profit Factor - ** The adjusted gross profit divided by the adjusted gross loss. The adjustment artificially deflates winning trades and inflates losing trades, giving you a worst case scenario.

** Select Profit Factor - ** Displays the amount made in relation to the amount lost, excluding trades more than set number of standard deviations from the average trade. This value is calculated by dividing Select Gross Profit by Select Gross Loss. By definition, a value greater than 1 means the strategy has a positive Select Total Net Profit.

Select trades are designed to adjust the results by removing all positive and negative outlying trades. An outlying trade is defined as any trade that has a profit or loss of the set number of standard deviations greater than the average trade.

** Max # of Contracts Held - ** The maximum number of contracts held at any one time.

** Commission Paid - ** The total sum (in $) paid in brokerage commissions. Slippage is not included.

** Open Position P/L - ** The profit/loss for the position currently open. If you do not have an open position, the field returns N/A.

** Annual Rate of Return - ** The annual rate of return of the strategy for the test period.

** Monthly Rate of Return - ** The monthly rate of return of the strategy for the test period.

** Buy & Hold Return - ** The return you would have gained if you had bought and held the papers for the whole duration of the test period. If you are trying to compare the total net profit of the strategy and the Buy & Hold Return, please remember keep in mind that the buy and hold strategy can lead to major drawdowns as well as risks because your investments are still exposed to market moves for the whole period. Also, since your money is placed in the market, you cannot invest it elsewhere.

The strategy results Net Profit figure does not necessary have to be above the Buy & Hold Return, but the closer (or more) the better, especially if time spent in the market is taken into account.

** Performance Ratios **

** Upside Potential Ratio ** - An alternative for using the expected return is the so-called upside potential ratio, which is the probability weighted average of returns above the reference rate. The upside potential ratio was developed by Sortino, Van der Meer, and Plantinga (1999). An important advantage of using the upside potential ratio rather than the Sortino ratio is the consistency in the use of the reference rate for evaluating both profits and losses.

** Sharpe Ratio ** - Nobel Laureate William Sharpe introduced the Sharpe Ratio, in 1966, under the name reward-to-variability ratio. This ratio is perhaps the best known of the return to risk measures. The formula for the Sharpe ratio is SR = (MR – RFR) / SD, where MR is the average return for period (monthly), RFR is the risk-free rate of return. You set the RFR as Interest rate in the Financial Settings tab of the Settings dialog box. SD is the standard deviation of returns. Thus, this formula yields a value that could be loosely defined as return per unit risked if we accept the premise that variability is risk. The higher Sharpe ratio the smoother the equity curve on a monthly basis. Having a smooth equity curve is a very important objective for many traders. That is why this ratio is widely used both at an individual market and at a portfolio level.

** Sortino Ratio ** - In addition to the Sharpe ratio we also calculate several risk-adjusted performance measures that are not based on the standard deviation. A common characteristic of these alternative performance measures is the use of so-called downside deviation with respect to a reference point. The reference point, which may also be called the minimal acceptable rate of return, is used to distinguish “risk” from “volatility”. According to Sortino and Van der Meer (1991), realizations above the reference point imply that goals are accomplished and, therefore, are considered “good volatility”. Realizations below the reference point imply failure to accomplish the goals and should be considered “bad volatility” or risk. Based on this premise, report calculates the Sortino ratio, the Fouse-index, and the upside-potential ratio.

The Sortino ratio is probably the most well-known measure, and it is calculated as follows: Sortino=(MR – MAR) / DD. MR is the average return for period (monthly). MAR is the minimal acceptable rate of return. You set the Minimal acceptable rate of return in the Financial Settings tab of the Settings dialog box. DD is the downside risk with respect to the minimal acceptable rate of return.

** Fouse Ratio ** - A measure of risk-adjusted performance that accommodates different degrees of risk aversion. It indicates the net return earned after subtracting the risk premium that corresponds to the investors risk tolerance and choice of risk measure. The Fouse DD index uses downside deviation as the risk measure.

Fouse DD index = rc - rt * dd^2. Where rc = compound average return, rt = risk tolerance (you set the risk tolerance as Degree of risk aversion of the investor in the Financial Settings tab of the Settings dialog box), dd = downside deviation. For a complete discussion of this topic see Sortino, F.A. and Price, L. N.; (1994).

** Net Prft / Largest Loss ** - The Total Net Profit divided by the Largest Losing Trade.

** Net Prft / Max Trade Drawdown ** - The Total Net Profit divided by Maximum Trade Drawdown.

** Net Prft / Max Strategy Drawdown ** - The Total Net Profit divided by Maximum Strategy Drawdown.

** Select Net Prft / Largest Loss ** - The Select Net Profit divided by the Largest Losing Trade.

** Select Net Prft / Max Trade Drawdown ** - The Select Net Profit divided by Maximum Trade Drawdown.

** Select Net Prft / Max Strategy Drawdown ** - The Select Net Profit divided by Maximum Strategy Drawdown.

** Adj Net Prft / Largest Loss ** - The Adjusted Net Profit divided by the Largest Losing Trade.

** Adj Net Prft / Max Trade Drawdown ** - The Adjusted Net Profit divided by the Maximum Trade Drawdown.

** Adj Net Prft / Max Strategy Drawdown ** - The Adjusted Net Profit divided by the Maximum Strategy Drawdown.

** Calmar Ratio ** - This is a return/risk ratio. Return (numerator) is defined as the Compound Annualized Rate Of Return over the last 3 years. Risk (denominator) is defined as the Maximum Drawdown over the last 3 years. If three years of data is not available, the available data is used. ABS is the Absolute Value.

** Sterling Ratio ** - This is a return/risk ratio. Return (numerator) is defined as the Compound Annualized Rate Of Return over the last 3 years. Risk (denominator) is defined as the Average Yearly Maximum Drawdown over the last 3 years less an arbitry 10%. If three years of data is not available, the available data is used. ABS is the Absolute Value.

** Time Analysis **

** Trading Period ** - The length of the test period.

** Time in the Market ** - The time that the strategy is in market. The greater the amount of time that the strategy is in the market, the more the strategy equity will be exposed to market moves, and thus the greater the risk.

** Percent in the Market ** - The Trading Period divided by the Time in the Market. The less the strategy has money invested in the market the less your capital is exposed to market activity and the more you have your equity available to invest elsewhere. If this number is large, make sure its reward/risk ratios are in line with other comparable strategies. Percent time in the market is yet another measure of risk.

** Longest flat period ** - The longest period the strategy refrained from trading, the systems patience measure. Keep in mind long flat periods mean the trader must have patience enough to follow the strategy. An important value to consider.

** Max Run-up Date ** - The date and time of the maximum run-up.

** Max Drawdown Date ** - The date and time of the maximum drawdown.

** Max Strategy Drawdown Date ** - The date and time of the maximum strategy drawdown.

** Max Close to Close Drawdown Date ** - The date and time of the maximum close to close drawdown.