Performance Metrics
The numbers that judge a strategy — return, risk, and the ratio between them.
Lessons
- CAGR: The Honest ReturnThe smoothed annual growth rate — why it beats "total return" for comparing strategies.
- Maximum DrawdownThe worst peak-to-trough fall — the number that decides whether you can actually stick with a strategy.
- The Sharpe RatioReturn per unit of risk — the most cited risk-adjusted metric, and its blind spots.
- Sortino & Downside RiskSharpe punishes upside volatility too. Sortino fixes that by counting only the losses.
- RoMaD: Return over Max DrawdownHow much return you earn for the worst pain endured — a brutally practical efficiency gauge.
- Win Rate vs PayoffA 30%-win strategy can crush a 70%-win one. Why win rate alone tells you almost nothing.
- Is the Result Significant?Thirty trades prove nothing. How many you need before a result means anything.