FAQ Section | Frequently Asked Questions
Performance describes the relative change in value of a defined measurement object over a defined period of time. It indicates how much a value has changed in relation to its starting point.
On which measurement dimension is performance considered?
The meaningfulness of performance depends directly on the chosen level of observation:
- Account level
- Portfolio level
- Position level
- Strategy level
An explanation of the individual levels can be found in the section "Measurement dimensions of KPIs".
What exactly does performance measure?
Performance always relates two values: initial value ↔ comparative value at a later point in time
Depending on the measurement dimension, this can be an account balance, a portfolio value, the price of a position or an aggregated strategy result.
Examples (per measurement dimension)
Account performance:
Starting account balance: €10,000
Final account balance: €12.000
→ Performance: +20%
(including realized results and fees)
Portfolio performance:
Starting portfolio value: €10,000
Current portfolio value: €11.500
→ Performance: +15 %
(including open positions and ongoing costs)
Position performance:
Initial price: €100
Current price: €115
→ Performance: +15 %
(isolated consideration of the trading decision)
Strategy performance:
Aggregated results of a rule-based model over several trades → Performance independent of account size or fees (evaluation of trading logic)
How to classify performance correctly?
Performance shows the result, not the way to get there. It makes no statement about: interim losses fluctuation intensity risk exposure psychological stress For a well-founded evaluation, performance must therefore always be considered together with other KPIs (e.g. drawdown, volatility, risk indicators).
Typical misinterpretation
A high performance automatically means a good strategy.
Why this is not true:
Two strategies can achieve the same performance, but differ fundamentally in terms of risk, capital development and stability.
Short conclusion
Performance is a central but isolated key figure. It provides a necessary introduction to valuation - but does not replace a risk or structural analysis.
The maximum drawdown describes the biggest interim loss that a measurement object has suffered within a defined period of time. It measures the difference between a local high and the subsequent low.
On which measurement dimension is the maximum drawdown considered?
The maximum drawdown is particularly meaningful at the following levels:
- Account level
- Portfolio level
The underlying observation levels are explained in the section "Measurement dimensions of KPIs".
What exactly does the maximum drawdown measure?
The maximum drawdown does not measure the final result, but the worst point on the way there.
Formally, the following relationship is measured: highest level ↔ lowest subsequent value
The drawdown only ends when a new high is reached.
Examples (per measurement dimension)
Account level:
Account balance increases from €10,000 to €14,000
Then the account balance falls to €10,500
→ Maximum drawdown: -25%
(Fees and realized losses are included as they affect the account balance.)
Portfolio level:
Portfolio value reaches €20,000
Interim decrease to €15,000
→ Maximum drawdown: -25%
(Unrealized losses and market movements have a direct impact on the portfolio value.)
How to classify the maximum drawdown correctly
The maximum drawdown is a key risk indicator. It does not answer the question of how much was earned, but rather: How much loss had to be accepted in the meantime in order to achieve this result?
It thus provides a realistic assessment of the resilience of a strategy - both financially and psychologically.
What does maximum drawdown deliberately not measure?
The maximum drawdown says nothing about:
- the duration of the drawdown
- the frequency of drawdowns
- the speed of recovery
- the probability of another drawdown
These aspects are mapped by further KPIs (T2/T3).
Typical misinterpretation
A high drawdown is automatically bad.
Why this falls short:
A temporarily high drawdown can be acceptable if it occurs infrequently, is recovered quickly or is part of a clearly defined risk strategy.
Interaction with performance
Performance and maximum drawdown should always be considered together.
- High performance with high drawdown → aggressive risk profile
- Moderate performance with low drawdown → defensive approach
Only the combination of both key figures allows a well-founded classification
Short conclusion
The maximum drawdown makes visible what performance alone obscures: the risk on the way to the result. It is therefore an indispensable addition to all result-oriented KPIs.
The hit ratio indicates how many trades were concluded with a profit in relation to the total number of all trades. It measures the frequency of successful trades, not their quality
On which measurement dimension is the hit rate considered?
The hit ratio is primarily interpreted at the following levels:
- Position level
- Strategy level
The underlying levels of consideration are explained in the section "Measurement dimensions of KPIs".
What does the hit ratio measure specifically?
The hit ratio relates two variables:
Number of winning trades ↔ total number of all trades
Each trade is weighted equally - regardless of the amount of profit or loss.
Example
A trader executes 100 trades:
60 trades end in profit
40 trades end in loss
→ Hit rate: 60%
How to correctly classify the hit rate
A high hit rate merely means that many trades were successful. However, it says nothing about
- how large the profits were
- how high the losses were
- whether the strategy is profitable overall
The hit ratio is therefore not a sole indicator of quality.
Typical misinterpretation
A high hit rate automatically means a good strategy.
Why this is not true:
A strategy with many small wins and few large losses can have a high hit rate - and still be unprofitable.
Interaction with other T1 KPIs
The hit rate only becomes meaningful in combination with:
- average profit vs. average loss
- Profit Factor
- Drawdown
Only this combination shows whether profits are structurally greater than losses
Short conclusion
The hit rate describes how often a strategy is right - not how well it is right. It is a supporting metric, not a proof of performance.
The profit factor puts the sum of all profits in relation to the sum of all losses. It shows how efficiently a strategy achieves profits in relation to its losses.
On which measurement dimension is the profit factor considered?
The profit factor is primarily meaningful at:
- Strategy level
- Account level
The underlying levels of consideration are explained in the section "Measurement dimensions of KPIs".
What exactly does the profit factor measure?
The profit factor depicts the following relationship:
Total profits ↔ total losses
Each trade is included with its realized result - regardless of hit rate or sequence.
Example
- Total profits: +€12,000
- Total losses: -€8,000
→ Profit factor = 1.5
Classification: For every euro lost, a profit of €1.50 was made
How should the profit factor be classified correctly?
The profit factor summarizes several individual effects into one key figure:
- Hit rate
- Average profit
- Average loss
It shows whether a strategy is structurally profitable - not how stable or how risky it is.
Orientation values (non-normative)
- < 1.0 → not profitable
- ≈ 1.0-1.3 → low efficiency
- > 1.5 → solid efficiency
- > 2.0 → high efficiency (context required)
These values are not a guarantee of quality, but merely an indication.
Typical misinterpretation
A high profit factor automatically means low risks.
Why this is not true:
A high profit factor can also result from a few, very large winning trades - with high drawdowns or long recovery phases at the same time.
Interaction with other T1 KPIs
The profit factor should always be considered together with:
- Maximum drawdown
- Drawdown duration / time to recovery (T2)
- Number of trades
Only this combination shows how resilient the efficiency actually is.
Short conclusion
The profit factor answers the question: How much profit is generated per unit of loss? It is one of the most important efficiency indicators - but is no substitute for risk and progression analysis.
The number of trades indicates how often a strategy trades within a defined period of time. It is not a performance indicator in the narrower sense, but a classification aid for other KPIs.
On which measurement dimension is the number of trades considered?
The number of trades is primarily interpreted at:
Strategy level
Account level
The underlying levels of consideration are explained in the section "Measurement dimensions of KPIs".
What does this KPI measure specifically?
Measured is:
- Number of closed trades ↔ period under review
Open positions are only taken into account when they are closed.
Example
- Strategy A: 25 trades per year
- Strategy B: 500 trades per year
Classification:
Both strategies can be profitable - but they differ fundamentally in structure, informative value and operational requirements.
How should the number of trades be classified correctly?
The number of trades has a significant influence:
- the statistical resilience of other KPIs
- the informative value of hit rates and average values
- costs, slippage and operational complexity
Few trades → lower statistical stability
Many trades → higher informative value, but stronger cost effect
Typical misinterpretation
More trades automatically lead to better results.
Why this is not true:
High trading frequency increases the database, but can worsen performance due to fees, slippage or overtrading.
Interaction with other T1 KPIs
The number of trades is particularly relevant in the context of:
- Hit rate (significance increases with sample size)
- Average profit/loss
- Profit factor
Without a sufficient number of trades, many KPIs lose their significance.
Short conclusion
The number of trades explains the conditions under which other KPIs are achieved. It does not assess the quality of a strategy - but it does make it possible to classify its key figures.