Strategy Performance Glossary
Account Size Required - The amount of money you must have on the account to start trading the strategy. This value is based on the following formula:
Absolute value of the maximum intraday draw down + (margin per contract x the maximum number of contracts held).
Always compare Net Profit with Account Size Required: the larger the net profit in comparison to the Account Size Required, the better the return on investment.
Note. The absolute value is the positive equivalent of any number, be it is positive or negative. Account size required is only applicable for futures contracts trading strategies because the margin is specified on a per contract/share basis in the Costs tab when formatting strategies.
Adjusted Gross Loss - This figure increases losing trades by adding to the the total number of losing trades its square root, multiplied by the strategy's average losing trade loss in $ - so if even these adjusted values are suffucient for trading the strategy, then in real trading the results hould 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 strategy's average winning trade profit in $ - so if even hese adjusted values are suffucient for trading the strategy, then in real trading the results should be even better.
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 suffucient for trading the strategy, then in real trading the results should be even better.
Adjusted Profit Factor - This field is similar to the Profit Factor, but it works by dividing the Adjusted Gross Profit by the Adjusted Gross Loss. This intentionally decreases winning trades and hightlights losing trades to present a worst case scenario.
Annual Rate of Return - The strategy's annual compounded rate of return 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 result's 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.
Commission Paid - The total sum (in $) paid in brokerage commissions. Slippage is not included.
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.
Gross Profit - The total sum of every profitable trade generated by a strategy.
Max # Contracts Held - The maximum number of contracts held at any one time.
Max Strategy Drawdown (%) - The largest equity dip (in %) that took place during the test period. In other words this field calculates Max Strategy Drawdown comparing to equity size at the moment of drawdown.
Max Strategy Drawdown - The largest equity dip that took place during the test period. The largest equity dip is the biggest difference between an equity high and a subsequent equity low.
For example, consider that a trade made 100, another trade made another 100, then a trade lost 50. Then a trade made 25. Then a trade lost 50. In this sequence of trades, the equity high of 200 was reached by winning the first two trades. The equity low was 125. The equity dip was 75, the difference between the equity high (200) and equity low (125).
Traditionally it is considered that the Maximum Strategy Drawdown should be small in comparison to the net profit. Remember that this will be the minimum account size (excluding margin calculations) required in order for you to trade this strategy.
Monthly Rate of Return - The monthly rate of return of the strategy for the test period.
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.
Profit Factor - This field indicates how many dollars a trading strategy makes for every dollar it loses. This is calculated by dividing Gross Profit by Gross Loss.
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 trtansaction 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.
Return on Initial Capital - The strategy's Total Net Profit divided by the Initial Capital.
Return on Max Str DrawDown - The strategy's 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.
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.
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 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.
Total 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.