New Risk & Drawdown Stats Adds Clarity to Performance

The new 0DTE and next-day backtester includes multiple data points to help traders analyze backtest results and strategy performance we can use when generating a bot from a backtest. New risk and drawdown stats add clarity when evaluating a backtest’s P/L curve and can provide valuable insights when comparing multiple strategies.

When reviewing the backtest results of one or more potential strategies, it’s important to consider the total P/L, the max risk, and the max drawdown throughout the test period. Max risk tells us the maximum capital at risk at any point during the test (losing P/L + open position risk). Max drawdown tells us the max fall from P/L peak to trough.

The two backtests below show similar total returns. However, although Backtest B had a slightly higher overall profit, its max risk is considerably higher, most notably early in the strategy’s backtest period.

Max risk and drawdown stats are incredibly important considerations when traders evaluate backtests and the ‘big picture’ because they highlight past losing periods, which are a very realistic part of trading any strategy. They essentially make us ask ourselves, “Am I comfortable with handling this potential risk and drawdown in my live trading account?”