Standardizing ATR Exits and Equity Risk for Strategy Backtests
Summary
This reusable backtesting template applies the same volatility-scaled exits and position-sizing rule to different entry signals, aiming to make comparisons more consistent. Average True Range sets the stop distance and profit target, while quantity is calculated so the stop distance corresponds to a fixed percentage of current equity. The defaults use a 14-period ATR, a stop three ATRs from entry, a target six ATRs away, and 1% risk per trade.
The example entries are 9/21 exponential moving-average crosses, but the document explicitly treats them as placeholders to replace. It includes assumptions for commission and slippage, and exits positions through stop and limit orders rather than signal-based closing rules. The template can help isolate differences in entry logic when applied consistently, though its sizing formula and execution assumptions still need to suit the instrument and testing setup.
No results for the placeholder or any substituted signal are reported. Outcomes depend on the entry rules and the backtest assumptions; standardized exits do not by themselves validate a strategy, and historical tests do not establish future performance.
Key ideas
- ATR determines the stop and target distances, while position size scales with equity and stop distance.
- The default target distance is twice the default stop distance.
- A placeholder moving-average cross is included only to demonstrate where entry logic belongs.
- Consistent exit and cost assumptions can make entry-signal comparisons more interpretable.
- The template reports no strategy results and cannot establish that substituted signals have an edge.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.