After creating a strategy, the next step is to analyze its results.
Simulating the strategy
Simulating the strategy is the process of running the strategy against historical data and it's done automatically by the platform as soon as you save the strategy.
Sometimes, simulating the strategy can take a while, depending on how complex it is and how much data is needs to run through. Most strategies will simulate in a few minutes, but some can take up to an hour.
Strategy results
Once the simulation is complete, you can view the results.
The results are aggregated into the Overall results as well as broken down per instrument. The Overall results represent the strategy's performance as a whole, indicating what would have occurred if you had traded in the past as per the strategy configuration.
The results are also broken down per instrument, showing the results of the strategy as if you had traded only that particular instrument. This is useful to get an idea of how the strategy performs on some instruments, for example on the more volatile pairs. It can help determining if the strategy is more suitable for trading on some types of instruments than others.
Understanding the results
For both the Overall and per instrument results, there are the same metrics.
Won
This refers to the gross amount that was won after simulating the trading strategy. It's expressed in USD because most traders will use USD as their base currency for their account.
If it's a positive number, it means that the strategy would have made that amount of money and, if it's a negative number, it means that the strategy would have lost that amount of money.
This value is gross and it does not take into account any commissions. You'll have to factor that in when deciding if the strategy is profitable or not.
Drawdown
It's very important to note the Won value doesn't take into account the fact that, during the simulation, your account may have reached $0 and trading would have stopped in the real world. This means that, even for a positive Won value, the strategy may have lost the entire account before becoming profitable again.
If the account is fully drawn down, despite a positive Won value, a flashing warning icon is shown. Clicking this icon will show exactly when the account reached $0.
Won / Lost (W/L)
These are the numbers of trades won over those lost and it represents another indicator of the success of the strategy.
Clicking this value will show you the list of trades that were made during the simulation and you can see the details of each trade. This can be useful to understand why the strategy is winning or losing.
You can switch between All instruments or individual ones to see the relevant trades.
Please keep in mind the number of trades saved in the platform is limited to 50 per instrument. Even though all trades are taken into account when calculating the results, only 50 per instrument are saved and can be browsed.
Having more losing than winning trades doesn't necessarily mean that the strategy is bad. Based on the risk-to-reward ratio, the strategy can still be profitable even with more losing trades.
Win %
This represents the percentage of winning trades compared to losing (or the other way around) and it's related directly to the W/L ratio described above. This value is only included to make it easier to see this ratio at a glance.
When the value is 50%, it means that the strategy has an equal number of winning and losing trades. A value higher than 50% means that the strategy has more winning trades than losing ones.
Return of investment (ROI)
The ROI is another important metric that shows how much money the strategy would have made compared to the amount of money that was invested. It's expressed as a percentage of the Won value explained above from the total amount of money that were invested.
In our example strategy, the total invested is the total per trade times the number of trades.
1% of a $2,500 account = $25 per trade
334 won trades + 485 lost trades = 819 total trades
$25 per trade x 819 trades = $20,475 invested
$4,575 won / $20,475 invested = 22% ROI
The ROI is a good indicator of how profitable the strategy was in real terms and how it could have scaled with a larger account.
Refining a strategy
After understanding the results, you may want to refine the strategy to improve its performance. An easy way to achieve this is to duplicate the strategy from the list of strategies and make changes to it, instead of starting from scratch.
Happy backtesting!
Last updated: 26 Dec 2024