How to read a backtest without fooling yourself
A well-read backtest tells you a lot; a badly-read one ruins you with confidence. Here are the numbers that matter and the traps they hide.
The metrics beginners look at (and why they mislead)
Net profit and % gain: they impress but say nothing about risk. A +500% with an 80% drawdown is a dead account that got lucky.
High win rate: 90% wins sounds great until you see the average loss is 20x the average win (classic martingale). Win rate alone means nothing.
The metrics that actually matter
- Profit Factor (PF): gross profit ÷ gross loss. Above 1 you win. But a PF above ~2.5-3 in a backtest usually signals overfitting, not genius.
- Max drawdown: the worst fall. Ask yourself: could I stomach (and afford) that streak live? If the DD is 40%, be ready to see the account halved at some point.
- Number of trades: 20 trades prove nothing (luck). You need hundreds for the result to be statistically credible.
- Modelling / history quality: if it's not ~99-100% with real ticks, the backtest is an optimistic approximation. MT5's default mode (synthetic ticks) inflates results.
If you optimise a strategy over a period and test it on THE SAME period, it will always look perfect — you've memorised the past. The honest test: optimise on one stretch (in-sample) and validate on another the system never saw (out-of-sample). If performance collapses out-of-sample, it was overfitting. And even that isn't enough: the final judge is real ticks.
The question that sums it all up
Don't ask "how much did it make?". Ask: "does it survive real ticks, its tail risk, and perturbing its parameters?". If all three answers are yes, you have something. If you haven't measured it, you just have a pretty curve.