Understanding Your Backtest Results

A guide to every metric, chart, and number on your results page.

After running a backtest, BacktestGPT shows you a set of performance metrics, risk statistics, and charts. You choose the ticker, time period, and strategy conditions — this page explains what the resulting numbers mean, how we calculate them, and how to interpret the values.

When we need to annualize a metric (convert it to a yearly rate), we use 252 trading days per year, which is the standard convention for US equity markets. Risk-adjusted metrics like the Sharpe ratio use a risk-free rate of 4% (approximate current US Treasury yield).

Return Metrics

Total Return

The overall percentage gain or loss of your strategy from start to finish, before any annualization. This is the most straightforward measure of how much money the strategy made or lost.

Total Return = (Final Portfolio Value − Initial Capital) / Initial Capital × 100

Shown in green when positive, red when negative. Compared against SPY buy-and-hold for the same period.

Annualized Return

The total return converted to a yearly rate, accounting for compounding. This lets you compare strategies that ran for different lengths of time on an equal footing.

Annualized Return = ((1 + Total Return / 100) ^ (1 / Years) − 1) × 100

Where Years = Trading Days / 252.

A strategy returning 50% over 3 years has an annualized return of about 14.5%, not 16.7%.

Best Month / Worst Month

The highest and lowest monthly return across the backtest period. Monthly returns are calculated by taking the portfolio value at the end of each calendar month and comparing it to the previous month-end value.

These appear in the monthly heatmap as the brightest green and deepest red cells.

Risk-Adjusted Returns

Sharpe Ratio

Measures return per unit of total risk. It answers: "how much extra return did I earn for each unit of volatility I took on?" Higher is better.

Sharpe = (Annualized Return − Risk-Free Rate) / Annualized Volatility

Volatility is the standard deviation of daily returns, annualized by multiplying by √252.

> 1.0 = good (green) · 0 to 1.0 = mediocre (neutral) · < 0 = losing money (red). Most hedge funds target a Sharpe above 1.0. Values above 2.0 are excellent.

Sortino Ratio

A variation of the Sharpe ratio that only penalizes downside volatility. Upside variance is ignored because large gains aren't "risk" — only losses are. This is more relevant for strategies with asymmetric returns.

Sortino = (Annualized Return − Risk-Free Rate) / Downside Deviation

Downside deviation is calculated the same way as volatility but using only negative daily returns, annualized by √252.

> 1.0 = good (green) · < 0 = red. A Sortino significantly higher than the Sharpe means most of your volatility came from gains, not losses.

Calmar Ratio

Measures annualized return relative to the worst drawdown. It tells you how much return you earned per unit of maximum pain.

Calmar = Annualized Return / |Max Drawdown|

> 1.0 = good (green) · < 0 = red. A Calmar of 2.0 means the strategy earned 2% annualized for every 1% of max drawdown.

Risk Metrics

Max Drawdown

The largest peak-to-trough percentage decline in portfolio value during the backtest. This measures the worst-case loss you would have experienced if you entered at the peak and exited at the trough.

Drawdown = (Portfolio Value − Running Maximum) / Running Maximum × 100
Max Drawdown = min(Drawdown) over all days

> −10% = mild (green) · −10% to −25% = moderate (neutral) · < −25% = severe (red). Also shown with the date it occurred and compared to SPY's drawdown.

Volatility

Annualized standard deviation of daily returns, expressed as a percentage. Higher volatility means larger daily swings — both up and down.

Volatility = StdDev(Daily Returns) × √252 × 100

< 15% = low volatility (green) · 15–30% = moderate (neutral) · > 30% = high (red). SPY typically runs around 15–20% annualized volatility.

Trade Statistics

Total Trades

The number of completed round-trip trades (entry + exit) during the backtest period. A trade opens when entry conditions are met and closes on exit conditions, stop loss, or take profit.

Win Rate

The percentage of trades that ended with a positive return.

Win Rate = Winning Trades / Total Trades × 100

> 50% = green. Note that win rate alone doesn't determine profitability — a 30% win rate can be very profitable if the average win is much larger than the average loss (trend-following strategies often work this way).

Avg Win / Avg Loss

The mean return percentage of winning trades and losing trades respectively. The ratio between these two (reward-to-risk) matters more than either number alone.

Avg Win = mean(return% of all winning trades)
Avg Loss = mean(return% of all losing trades)

If your avg win is 8% and avg loss is −4%, your reward-to-risk ratio is 2:1 — you only need a 33% win rate to break even.

Profit Factor

The ratio of gross profits to gross losses. A profit factor above 1.0 means the strategy is profitable overall.

Profit Factor = Sum(Winning Returns) / |Sum(Losing Returns)|

> 1.5 = strong (green) · 1.0–1.5 = marginal (neutral) · < 1.0 = losing money (red). A profit factor of 2.0 means you made $2 for every $1 lost.

Benchmark Comparison (vs SPY)

Every backtest is compared against a buy-and-hold SPY position over the same time period. SPY tracks the S&P 500 index — it's the most common benchmark for US equity strategies. The benchmark is normalized to the same starting capital as your strategy so the equity curves are directly comparable on the chart.

Benchmark Return

The total return of buying SPY at the start of the backtest and holding it until the end, with no trading.

Alpha

The excess return of your strategy over the benchmark. Positive alpha means your strategy outperformed buy-and-hold SPY.

Alpha = Strategy Annualized Return − Benchmark Annualized Return

> 0 = outperforming (green) · < 0 = underperforming (red). This is a simple alpha, not risk-adjusted (Jensen's alpha).

Beta

Measures how much your strategy moves relative to the market. A beta of 1.0 means your strategy moves in lockstep with SPY. Below 1.0 means less volatile than the market; above 1.0 means more volatile.

Beta = Covariance(Strategy Returns, Benchmark Returns) / Variance(Benchmark Returns)

1.0 = market-like exposure · < 1.0 = defensive · > 1.0 = aggressive · negative = inversely correlated with the market.

Charts

Equity Curve

A line chart showing your portfolio value over time (blue) alongside the SPY benchmark (orange), both starting from the same initial capital. The gap between the lines shows whether your strategy is outperforming or underperforming buy-and-hold at any point in time.

Drawdown Chart

An inverted area chart below the equity curve showing the current drawdown at each point in time. When the portfolio hits a new high, drawdown resets to 0%. The deeper the chart dips, the larger the loss from the most recent peak.

Monthly Returns Heatmap

A grid with years as rows and months as columns, color-coded by return. Green cells are positive months, red cells are negative, and the intensity shows the magnitude. This reveals seasonal patterns and how consistently the strategy performs across different time periods.

Price Chart & Indicators

The candlestick chart shows the actual price action with your entry and exit points marked. Overlay indicators (moving averages, Bollinger Bands, etc.) appear directly on the price chart. Oscillators (RSI, MACD, etc.) appear in separate panels below. For multi-timeframe strategies, indicators from different intervals are labeled with their timeframe (e.g., FRAMA@1H).

Important Disclaimer

All metrics are calculated from historical data and represent hypothetical performance. Backtests do not account for market impact, liquidity constraints, execution delays beyond estimated slippage, tax implications, or survivorship bias. Past performance does not guarantee future results. Always consult a qualified financial professional before making investment decisions.