Win rate, profit factor, expectancy, and drawdown: reading strategy results properly

A high win rate may hide occasional large losses. A low win rate may still be profitable if average winners are much larger than average losses. The distribution of outcomes matters more than the percentage of winning trades by itself.

Review the average and median win, average and median loss, largest loss, consecutive losses, and whether a small number of exceptional trades produced most of the profit.

Profit factor is gross profit divided by gross loss. A value above one indicates that historical gross profits exceeded historical gross losses, before considering whether the sample is robust. Expectancy combines win probability and average outcome to estimate the historical average result per trade.

Both metrics can change sharply when there are few trades or when parameters are overfitted. Results should be reviewed across different periods, instruments, and realistic cost assumptions.

Maximum drawdown measures the largest peak-to-trough decline in the tested equity curve. It helps traders consider capital pressure and whether they could continue following the strategy during a difficult period.

Historical drawdown is not a maximum possible future loss. Live drawdowns can exceed backtests because markets change, fills differ, strategies overlap, and rare events may not exist in the historical sample.