Key Metrics for Evaluating Trading System Performance

One minute read
trading
trading • performance

Summary from this tweet from Laurens Bensdorp

Here’s what seems to matter most:

Core Performance Metrics:

  • CAGR (Compound Annual Growth Rate) and its variants
  • CAGR/UI (Ulcer Index) ratio
  • CAGR/MaxDD (Maximum Drawdown)
  • Some use RAR (Risk-Adjusted Return) instead of CAGR for more date-independent analysis
  • Risk Management Metrics:

Maximum Drawdown

  • Average Exposure (particularly important for mean reversion strategies)
  • Drawdown Correlation
  • Total Drawdown
  • Ulcer Index
  • Trade Quality Indicators:

Profit Factor

  • Expectancy
  • System Quality Number (SQN)
  • Win Ratio
  • Standard Deviation of Returns
  • Coefficient of Variation
  • Strategy-Specific Considerations:

For Stocks:

  • Individual trade statistics
  • Capital utilization efficiency
  • Average capital use per trade

For Futures:

  • Risk metrics
  • Drawdown analysis
  • Trend gain patterns

Advanced Analysis:

  • Walk-forward testing results consistency
  • Performance during “black swan” events (1987 crash, flash crashes)
  • Stagnation periods
  • Monthly Return on Risk (RoR)
  • Monthly dollar performance

Evaluation Method Tip:

Some traders use conditional formatting with color ranking to aggregate multiple metrics, helping identify top-performing systems more easily.