Trading statistics: test what a backtest result actually says

Interpret compounding, profit factor, overlapping trades, net benchmarks and bootstrap assumptions with independently calculated examples.

Course outline

1. 1

   Average return versus compound growth: reconcile the equity curve

   Calculate arithmetic average return and compounded account growth from the same sequence. Explain volatility drag and why trade R is not account return.

   7 min
2. 2

   Profit factor: check whether one winner carries the result

   Calculate profit factor from net trade outcomes, then inspect winner concentration. Keep sensitivity analysis separate from deleting inconvenient trades.

   7 min
3. 3

   Overlapping trades: why twenty results may contain four market episodes

   Map overlapping holding windows before interpreting a sample size. Separate trade count, independent information and simultaneous account exposure.

   7 min
4. 4

   Trading benchmark: compare net results on the same capital and dates

   Compare a strategy with a declared benchmark after costs, cash flows and exposure differences. Avoid calling gross outperformance investment skill.

   7 min
5. 5

   Trading bootstrap: preserve dependent blocks when resampling results

   Enumerate a tiny trade-versus-day bootstrap to see how the resampling unit changes uncertainty. Explain why more simulations do not create more market history.

   7 min

Open full-size diagram

1. Average return versus compound growth: reconcile the equity curve
2. Profit factor: check whether one winner carries the result
3. Overlapping trades: why twenty results may contain four market episodes
4. Trading benchmark: compare net results on the same capital and dates
5. Trading bootstrap: preserve dependent blocks when resampling results

Educational material. Examples do not establish a profitable strategy. Trading costs, gaps and liquidation can produce losses beyond a planned stop.