Analyze Backtest Results Tutorial

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

Step 1: Is the Strategy Profitable?

Start with the fundamental question: did it make money?

Key Metrics:

Total Return

+12.5%

Positive is good, but compare to SPY benchmark. If SPY returned +15%, you underperformed.

Sharpe Ratio

1.4

Risk-adjusted returns. Above 1.0 is acceptable, above 1.5 is good.

Step 2: Risk Evaluation

Max Drawdown

Critical metric: Can you handle -18% loss emotionally? If not, strategy is too risky regardless of returns.

Win Rate vs Avg Win/Loss

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.

Common Problems & Solutions

Too Few Trades

Fix: Relax entry conditions, extend date range, reduce position size

High Drawdown

Fix: Tighten stop losses, add trend filters, reduce position size

Works Only in Bull Markets

Fix: Add 200 MA filter, test on bear market periods, include stop losses