A Composite KPI for Evaluating Trading-System Backtests

Summary

This document presents a composite indicator intended to summarize several dimensions of trading-system quality in one figure. Its components include profit-taking efficiency, the ratio of favorable to adverse open-trade excursions, a measure of how regularly equity highs occur across closed trades, and a ratio comparing equity peaks with accumulated drawdowns. The script averages these component values and displays them in a table.

The included example strategy enters after three consecutive candles in the same direction and places a stop at the signal candle’s low or high, with a target based on twice the entry-to-stop distance. The author explicitly notes that the example is not a meaningful strategy and is included to let users test the KPI with another system. The document cites an award-winning research paper as background but provides no validation results for the indicator itself. Some ratios can be undefined or unstable with few or no trades, and a single aggregate score can conceal differences between components; users need to inspect the underlying calculations and test across appropriate samples.

Key ideas

• The KPI averages four measures related to trade excursions, profit capture, equity-high timing, and drawdown.
• The displayed component values are intended to help compare backtest quality with one summary score.
• The example trades consecutive same-direction candles with a stop at the signal candle extreme and a reward target twice the risk distance.
• The document says the sample strategy is not intended to provide meaningful trading results.
• No empirical validation is supplied, and the combined score should be interpreted alongside its component measures.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.