Standardizing ATR Exits and Equity-Based Risk in Strategy Tests

Summary

This document presents a reusable backtesting framework for comparing entry signals under consistent exit and sizing rules. It calculates average true range, places stop-loss and take-profit levels at configurable ATR multiples, and sizes positions so the planned loss at the stop corresponds to a chosen share of current equity. The example uses a 3 ATR stop and a 6 ATR target, with a 1% risk setting. Commission and slippage assumptions are also specified.

The supplied entry logic is a short- and long-side moving-average crossover included only as a placeholder; users are expected to substitute their own signals. The framework aims to make comparisons more focused on entry logic by holding risk controls and trading costs constant. It reports no performance tests or empirical evidence that any entry signal is profitable. Results depend on the substituted rules and the accuracy of the cost assumptions; backtest outcomes do not establish future performance. The document also does not discuss instrument-specific contract values or other practical constraints that may affect realized risk.

Key ideas

• ATR multiples define the stop and profit target independently of the entry signal.
• Position size is calculated from equity, a selected risk percentage, and stop distance.
• Holding exit rules and cost assumptions constant can make entry-signal comparisons more consistent.
• The moving-average crossover is illustrative and should not be treated as a recommended strategy.
• Backtest results depend on the chosen entry logic and do not guarantee future performance.

Tags

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