Strategy Analysis

 

Strategy Analysis centers on the overall performance of the trading strategy and should be used to gauge the total performance. It should not, however, be used exclusively to determine the true worth of the strategy or portfolio. The available fields are listed and described below in alphabetical order:

Adjusted Gross Loss

This figure inflates losing trades by calculating the total losing trades plus its square root, multiplied by the strategy's average losing trade dollar amount. Therefore, if you are willing to accept this adjusted figure and trade the strategy, then actual strategy returns should be even more acceptable.

Adjusted Gross Profit

This figure deflates winning trades by calculating the total winning trades minus its square root, multiplied by the strategy's average winning trade dollar amount. Therefore, if you are willing to accept this adjusted figure and trade the strategy, then actual strategy returns should be even more acceptable.

Adjusted Net Profit

This field is calculated by subtracting the adjusted gross loss from the adjusted gross profit. The adjusted gross profit and loss fields inflate the strategy's losing trades and deflate the strategy's winning trades in an effort present a worst case scenario. Therefore, if you are willing to accept this adjusted figure and trade the strategy, then actual strategy returns should be even more acceptable.

Adjusted profit factor

This field is similar to profit factor, but it calculates by dividing the adjusted gross profit the adjusted gross loss. The adjustment artificially deflates winning trades and inflates losing trades, giving you a worst case scenario.

Annual rate of return

The strategy's annual compounded rate of return for the test period.

Note This value will not display for strategies applied to intraday charts.

Buy/Hold return

The return you would have achieved if you had bought and held for the duration of the test period.

When comparing the total net profit of the strategy to the Buy/Hold Return, keep in mind that the buy and hold strategy can represent significant drawdown as well as risk because your investments are exposed to market moves 100% of the time. Also, consider that since your money is in the market 100% of the time, you cannot invest it elsewhere.

The strategy result's Net Profit figure does not need to be greater than the Buy/Hold Return, but certainly the closer (or greater) the better, especially if combined with time in the market.

Commissions

The dollar amount paid in brokerage commissions. This value does not include slippage.

Cumulative return

The cumulative return value finds the amount of money you made (plus open positions), divided by the amount of money that was invested on the first trade.

The formula used to calculate cumulative return is:

(net profit + open position profit or loss) / (Absolute value (1st entry price * Big Point Value * number of contracts of first trade) )

Gross Loss

This field calculates the cumulative total of all losing trades generated by a strategy. This is a very important number that is often overlooked because many people only look at the winning trades, ignoring the losing trades. Keep in mind that net profit will increase not only when you improve gross profit but also when you reduce gross loss. It is very important to analyze the losing trades in order to improve your trading strategies.

Gross Profit

This field calculates the cumulative total of all winning trades generated by a strategy.

Interest Earned

The interest rate your money earns when not in the market. You set the interest rate you earn on non-invested money in the Costs

tab of the Format Strategy dialog box.

K-ratio

This ratio is similar to the Sharpe Ratio. It differs in that it uses linear regression techniques to measure the consistency of results through time. The higher the ratio, the greater the return in relation to risk.

Note This value will not display for strategies applied to intraday charts.

Net Profit

This field calculates the total number of dollars made or lost by the trading strategy during the test period.

Open Position

This field calculates the profit/loss on the current open position. If you do not have an open position the field returns zero.

Percent in the market

Divides the test period by total time in the market to derive the percentage of time spent in the market. The less time 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.

Percent profitable

This field calculates the percentage of profitable trades generated by a strategy. Percent profitable is calculated by dividing the number of winning trades by total trades generated by a strategy.

Percent profitable can be misleading by itself because there are different approaches to profitability. A strategy could have many small winning trades, in which case the percent profitable would be high with a small average winning trade, or a few big winning trades, which would produce a low percent profitable and a big average winning trades.

Many successful strategies have a percent profitability below 50% but are still profitable because their losses are limited.

Profit factor

This field calculates how many dollars a trading strategy made for every dollar it lost. This value is calculated by dividing gross profits by gross losses.

Ratio avg. win/avg. loss

This field calculates, on average, how many dollars you win for every dollar you lose. This value is calculated by dividing the average winning trade by the average losing trade.

This field can be very deceiving by itself because strategies can have different approaches to profitability. A strategy could look to trade very often in order to capture many small profits yet have an average losing trade greater than the average winning trade. The higher this number is the better, but it should be looked at together with the percentage of winning trades and the net profit.

Return on initial capital

The strategy's net profit divided by the initial capital.

Return on maximum drawdown

The field represents the strategy's net profit divided by its maximum draw down.

Note When you do not factor in margin on the Costs tab of the Format Strategy dialog box, Return on Account will equal this field.

Return Retracement Ratio

This reward/risk ratio is an alternative to the Sharpe Ratio. Unlike the Sharpe Ratio, this field distinguishes the difference between upside and downside return fluctuation. The higher the ratio, the greater the return in relation to risk.

Note This value will not display for strategies applied to intraday charts.

RINA Index

This proprietary index combines select net profit, time in the market, and drawdown calculations into a single reward/risk ratio. The larger the number the more efficient the strategy. Look for a strategy with an index of 30 or more.

RINA Index = (Select Net Profit)/((Average Drawdown) x (Percent time in the market))

Select Gross Loss

This field adjusts the gross loss by subtracting negative outlier trades from total losing trades.

Note Strategies that are heavily dependent upon outlier trades will generally have dramatically different actual profit results. A trade is considered to be an outlier when its loss is greater than three standard deviations away from the average loss.

Select Gross Profit

This field adjusts the gross profit by subtracting positive outlier trades from total winning trades.

Note Strategies that are heavily dependent upon outlier trades will generally have dramatically different actual profit results. A trade is considered to be an outlier when its profit is greater than three standard deviations away from the average profit.

Select Net Profit

This field adjusts strategy results by removing all outlier trades, both positive and negative. The final value represents the net profit without any anomalous trades.

Note Strategies that are heavily dependent upon outlier trades will generally have dramatically different actual profit results. A trade is considered to be an outlier when its profit/loss is greater than three standard deviations away from the average profit/loss.

Sharpe Ratio

Average monthly return (%) minus the risk-free rate (Interest rate setting in the Costs tab of the Format Strategy dialog box) divided by the standard deviation of monthly returns. The higher the number, the greater the return in relation to the risk. This calculation is based on the last 36 months.

Note This value will not display for strategies applied to intraday charts. An alternative to this field is the Return Retracement Ratio.

 

Total Trade Analysis

 

Total Trade Analysis enables you to evaluate the performance of the strategy by analyzing each trade. This section includes overall trade analysis information as well as Run-Up and Drawdown, Reward/Risk Ratios, and Outlier Trades information. Each available field is listed and described below in alphabetical order within its category:

 

Total Number of Trades

This field calculates the total number of trades (number of winning trades plus number of losing trades) generated by a strategy. The total number of trades is significant for a number of reasons. For example, no matter how large the net profit generated by a strategy, you must be sure the strategy generated enough trades to be statistically valid. Also you need to consider the time period tested with the total number of trades; the strategy may trade too frequently or too seldom for your needs.

Notes When viewing the Summary Tab in the TradeStation Strategy Performance Report, this field calculates and displays a value for all trades (long and short), long trades (buying long and exiting), and short trades (selling short and exiting).

Average Trade

The average profit/loss of all trades.

1 Standard Deviation (STDEV)

Measures the absolute variability of the returns made by the winning (or losing) trades. The smaller the number, the more trades will resemble the average winning (or losing) trade, and the more stable the strategy.

Average win +/- 1 STDEV

Measures the extreme range of trades (winning or losing, depending on the analysis) +/- one standard deviation (STDEV) from the average.

Coefficient of variation

Expresses the standard deviation as a percentage of the mean. This percentage figure relates to the stability of the winning (losing) trades. The smaller the percentage, the more stable the trades.

 

Run-Up

 

Run-up is defined as the strategy's maximum profit potential during the course of a trade (the opposite of drawdown). The greater the run-up, the better the performance, assuming the strategy captures the majority of the move.

Maximum Run-up

The largest intraday run-up experienced by the strategy on a single closed out trade. This measures the open to the highest unrealized high of the trade for a long position, and from the open to the lowest unrealized low of the trade for a short position. It represents the largest amount of reward (realized or unrealized) experienced during a trade.

Maximum Run-up

The largest intraday run-up experienced by the strategy on a single closed out trade. This measures the open to the highest unrealized high of the trade for a long position, and from the open to the lowest unrealized low of the trade for a short position. It represents the largest amount of reward (realized or unrealized) experienced during a trade.

Max. Run-up Date

The date of the strategy's maximum run-up.

Average Run-up

The average maximum profit potential of all the trades. This quantifies the strategy's "normal" profit potential. The maximum run-up represents the best case scenario, whereas the average represents the strategy's more probable behavior.

Average win +/- 1 STDEV

Measures the extreme range of trades (winning or losing, depending on the analysis) +/- one standard deviation (STDEV) from the average.

1 Standard Deviation (STDEV)

Measures the absolute variability of the returns made by the winning (or losing) trades. The smaller the number, the more trades will resemble the average winning (or losing) trade, and the more stable the strategy.

Coefficient of variation

Expresses the standard deviation as a percentage of the mean. This percentage figure relates to the stability of the winning (losing) trades. The smaller the percentage, the more stable the trades.

{ ** 1987, 1999 Omega Research, Inc. ** }

Run-Up

 

Run-up is defined as the strategy's maximum profit potential during the course of a trade (the opposite of drawdown). The greater the run-up, the better the performance, assuming the strategy captures the majority of the move.

 

Maximum Run-up

The largest intraday run-up experienced by the strategy on a single closed out trade. This measures the open to the highest unrealized high of the trade for a long position, and from the open to the lowest unrealized low of the trade for a short position. It represents the largest amount of reward (realized or unrealized) experienced during a trade.

Max. Run-up Date

The date of the strategy's maximum run-up.

Average Run-up

The average maximum profit potential of all the trades. This quantifies the strategy's "normal" profit potential. The maximum run-up represents the best case scenario, whereas the average represents the strategy's more probable behavior.

Average win +/- 1 STDEV

Measures the extreme range of trades (winning or losing, depending on the analysis) +/- one standard deviation (STDEV) from the average.

1 Standard Deviation (STDEV)

Measures the absolute variability of the returns made by the winning (or losing) trades. The smaller the number, the more trades will resemble the average winning (or losing) trade, and the more stable the strategy.

Coefficient of variation

Expresses the standard deviation as a percentage of the mean. This percentage figure relates to the stability of the winning (losing) trades. The smaller the percentage, the more stable the trades.

 

Drawdown

 

Drawdown analysis is defined as the strategy's maximum loss potential during the course of a trade. The greater the drawdown, the more "pain" experienced by the trader.

 

Maximum Drawdown

The largest intraday drawdown experienced by the strategy on a single closed out trade. This version of drawdown measures the open to the lowest unrealized low of the trade, based on a long position and reversed for a short position.

1 Standard Deviation (STDEV)

Measures the absolute variability of the returns made by the winning (or losing) trades. The smaller the number, the more trades will resemble the average winning (or losing) trade, and the more stable the strategy.

Maximum Drawdown Date

The date of the strategy's maximum drawdown.

Coefficient of variation

Expresses the standard deviation as a percentage of the mean. This percentage figure relates to the stability of the winning (losing) trades. The smaller the percentage, the more stable the trades.

 

Reward/Risk Ratios

 

The Reward/Risk ratios center on the strategy's profitability in relation to risk. With these ratios, risk is measured using the strategy's largest loss or maximum drawdown. The larger the ratio, the more profitable the strategy is relative to its risk.

 

Net Prft/Largest Loss

The total net profit divided by the largest losing trade.

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

{ ** 1987, 1999 Omega Research, Inc. ** }

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

{ ** 1987, 1999 Omega Research, Inc. ** }

{ ** 1987, 1999 Omega Research, Inc. ** }

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

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{ ** 1987, 1999 Omega Research, Inc. ** }

 

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{ ** 1987, 1999 Omega Research, Inc. ** }

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{ ** 1987, 1999 Omega Research, Inc. ** }

 

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{ ** 1987, 1999 Omega Research, Inc. ** }

 

{ ** 1987, 1999 Omega Research, Inc. ** }.

 

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

{ ** 1987, 1999 Omega Research, Inc. ** }

{ ** 1987, 1999 Omega Research, Inc. ** }

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

{ ** 1987, 1999 Omega Research, Inc. ** }

 

 

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

{ ** 1987, 1999 Omega Research, Inc. ** }

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

 

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

{ ** 1987, 1999 Omega Research, Inc. ** }

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

 

{ ** 1987, 1999 Omega Research, Inc. **.

Adjusted Profit Factor

Annual Rate Of Return

Buy/Hold Return

Commission Paid

Cumulative Return

Gross Loss

Gross Profit

Interest Earned

K-Ratio

Net Profit

Open Position

Percent in the Market

Percent Profitable

Profit Factor

Ratio Avg. Win/Avg. Loss

 

Return on Initial Capital

Return on Maximum Drawdown

Return Retracement Ratio

RINA Index

Select Gross Loss

Select Gross Profit

Select Net Profit

Sharpe Ratio

 

Total Trade Analysis

 

Total Trade Analysis enables you to evaluate the performance of the strategy by analyzing each trade. This section includes overall trade analysis information as well as Run-Up and Drawdown, Reward/Risk Ratios, and Outlier Trades information. Each available field is listed and described below in alphabetical order within its category:

 

Number of Total Trades

Average Trade

1 Std. Deviation (STDEV)

Avg. Trade +/- 1 STDEV

Coefficient of Variation

 

Run-Up

 

Run-up is defined as the strategy's maximum profit potential during the course of a trade (the opposite of drawdown). The greater the run-up, the better the performance, assuming the strategy captures the majority of the move.

 

Maximum Run-up

Max. Run-up Date

Average Run-up

Avg. Trade +/- 1 STDEV

1 Std. Deviation (STDEV)

Coefficient of Variation

 

Drawdown

 

Drawdown analysis is defined as the strategy's maximum loss potential during the course of a trade. The greater the drawdown, the more "pain" experienced by the trader.

 

Maximum Drawdown

Average Drawdown

1 Std. Deviation (STDEV)

Max. Drawdown Date

Avg. Trade +/- 1 STDEV

Coefficient of Variation

 

Reward/Risk Ratios

 

The Reward/Risk ratios center on the strategy's profitability in relation to risk. With these ratios, risk is measured using the strategy's largest loss or maximum drawdown. The larger the ratio, the more profitable the strategy is relative to its risk.

 

Net Prft/Largest Loss

Adj Net Prft/Largest Loss

Net Prft/Max Drawdown

Adj Net Prft/Max Drawdown

 

Outlier Trades

 

This section displays profit/loss by selectively removing the trades that exceed the average trade by plus or minus three (3) standard deviations.

 

Positive Outliers

Negative Outliers

Total Outliers

 

Efficiency Analysis

 

This section centers on a trade's efficiency to capture the maximum profit potential from the total price movement. The efficiencies are broken down into three types: entry, exit, and total. Trading strategies tend to be relatively inefficient; even the best strategy does not take full advantage of each and every trading opportunity. Each of the fields is described below, and the definition of each applies for the entry, exit, and total.

 

Average Efficiency

1 Std. Deviation (STDEV)

Avg. trade +/- 1 STDEV

Coefficient of variation

 

Open Position Analysis

 

Unrealized Profit/Loss

Time in trade (Days)

 

Adjusted Gross Loss

 

This figure inflates losing trades by calculating the total losing trades plus its square root, multiplied by the strategy's average losing trade dollar amount. Therefore, if you are willing to accept this adjusted figure and trade the strategy, then actual strategy returns should be even more acceptable.

 

 

 

{ ** 1987, 1999 Omega Research, Inc. ** }

 

{ ** 1987, 1999 Omega Research, Inc. ** }