AlgoDevStudio
Every Metric You Must Know
Don't trust the screenshot. Trust the math. A deep dive into Drawdown, Sharpe, and Profit Factor.
Beginners look at "Total Net Profit". Professionals look at "Max Drawdown" and "Sharpe Ratio". In the world of algorithmic trading, profit is meaningless without context of the risk taken to achieve it.
1. Max Drawdown (MDD)
The maximum observed loss from a peak to a trough of a portfolio, before a new peak is attained. It measures the "pain" you must endure.
Meaning:
If your algo has a 20% MDD, it means at some point, your account balance dipped 20% from its highest point. If you can't stomach a 20% drop, you will turn off the bot right at the bottom.
2. Sharpe Ratio
Calculates risk-adjusted return. Ideally, you want returns higher than the risk-free rate (like an FD), with minimal volatility.
- > 1.0: Acceptable
- > 2.0: Very Good
- > 3.0: Excellent (Institutional Grade)
3. Profit Factor
Probably the simplest metric. It is the ratio of Gross Profit to Gross Loss.
Example:
Gross Wins: ₹1,00,000 | Gross Losses: ₹50,000
Profit Factor = 2.0
A PF below 1.5 is often considered unstable for automated systems.
4. Win Rate vs Risk:Reward
The holy grail is NOT a 90% Win Rate. It's the balance between how often you win and how much you win when you do.
High Win Rate Strategy
Quick Scalping
Risk:Reward: 1:0.8
Trend Following
Positional
Risk:Reward: 1:3
💡 Both strategies make money. One relies on accuracy, the other on huge winners.
5. CAGR
Compound Annual Growth Rate. The mean annual growth rate of an investment over a specified period of time longer than one year.
It smooths out the volatility of returns to give you a single annual figure.
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