Strategy Backtester · Foundations
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How to Read the Backtester
Three readouts tell you almost everything: the equity curve, the maximum drawdown, and the hit-rate-versus-win/loss pair.
Start with the equity curve
The equity curve plots the growth of $1 following your rule against simple buy-and-hold. A rule that is earning its keep beats the benchmark on a drawdown-adjusted basis — not merely on total return. A curve that only outruns buy-and-hold by taking wild swings is rarely worth trading.
Respect the drawdown
Maximum drawdown is the deepest peak-to-trough loss along the way. It is the single number that decides whether a strategy is survivable, because in real life you have to keep trading it through that worst stretch. A higher return with an unbearable drawdown is not an edge you can actually harvest.
Read hit rate with win/loss
A low hit rate can still win handsomely if the average win dwarfs the average loss; a high hit rate can still lose if a single tail wipes out many small gains. Always read the two numbers together — never the hit rate alone.
Reading an equity curve →Hit rate vs. win/loss →Open the Backtester →
Educational content from Nations Indexes. Backtests are descriptive of historical data and are not investment advice or a promise of future results.