Backtesting is a key phase to get statistics showing how effective the trading strategy is. As we previously learned, the backtesting relies on the assumption that the past predicts the future. This phase will provide the statistics that you or your company consider important, such as the following:
- Profit and loss (P and L): The money made by the strategy without transaction fees.
- Net profit and loss (net P and L): The money made by the strategy with transaction fees.
- Exposure: The capital invested.
- Number of trades: The number of trades placed during a trading session.
- Annualized return: This is the return for a year of trading.
- Sharpe ratio: The risk-adjusted return. This date is important because it compares the return of ...