Understanding Your Results

Key Metrics Explained

Total Return

What: The overall percentage gain or loss from start to end.

Interpretation:

• Positive = profitable strategy

• Compare against buy-and-hold of the same asset

• A strategy with +10% return while BTC was -20% is actually very strong

Sharpe Ratio

What: Risk-adjusted return. Measures return per unit of risk (volatility).

Formula: (Strategy Return - Risk-Free Rate) / Standard Deviation of Returns

Sharpe	Interpretation
< 0	Losing money
0 - 0.5	Poor risk-adjusted returns
0.5 - 1.0	Acceptable
1.0 - 2.0	Good
> 2.0	Excellent

Sortino Ratio

What: Like Sharpe, but only penalizes downside volatility. Doesn't punish positive variance.

Why it matters: A strategy with big wins and small losses has a high Sortino even if Sharpe is moderate.

Sortino	Interpretation
< 0	Losing money
0 - 1.0	Below average
1.0 - 2.0	Good
> 2.0	Excellent

Max Drawdown

What: The largest peak-to-trough decline in equity during the backtest period.

Example: If equity went from $10,000 to $12,000, then dropped to $9,600 before recovering:

• Peak: $12,000

• Trough: $9,600

• Max Drawdown: ($12,000 - $9,600) / $12,000 = 20%

Drawdown	Risk Level
< 10%	Low risk
10 - 20%	Moderate risk
20 - 30%	High risk
> 30%	Very high risk

Calmar Ratio

What: Annual return divided by maximum drawdown. Measures return relative to worst-case loss.

Calmar	Interpretation
< 0.5	Poor
0.5 - 1.0	Acceptable
1.0 - 3.0	Good
> 3.0	Excellent

Win Rate

What: Percentage of trades that were profitable.

Important: Win rate alone is misleading. A strategy can be profitable with 30% win rate if winners are much larger than losers.

Win Rate	Average Win/Loss Ratio Needed
30%	> 2.33
40%	> 1.50
50%	> 1.00
60%	> 0.67
70%	> 0.43

Profit Factor

What: Gross profit divided by gross loss.

Profit Factor	Interpretation
< 1.0	Losing strategy
1.0 - 1.5	Marginal
1.5 - 2.0	Good
2.0 - 3.0	Very good
> 3.0	Excellent (verify it's not overfitted)

Reading the Equity Curve

Healthy Equity Curve

• Steadily rising with small, short drawdowns

• Consistent slope (not dependent on a few big wins)

• Quick recovery from drawdowns

Warning Signs

• Long flat periods (strategy not finding opportunities)

• Sharp drops (large individual losses)

• All profits from a few trades (unreliable)

• Staircase pattern (one big win, then flat — not repeatable)

Common Pitfalls

Overfitting

Problem: Optimizing parameters to perfectly match historical data.

Signs: Sharpe > 3, win rate > 80%, profit factor > 5 — if these look too good, they probably are.

Solution: Use out-of-sample testing. Split your data: optimize on 70%, validate on the remaining 30%.

Survivorship Bias

Problem: Only testing assets that still exist/are popular.

Solution: Include a variety of assets and time periods.

Look-Ahead Bias

Problem: Using information that wouldn't be available at the time of the trade.

Solution: HyperSync's backtest engine evaluates conditions at bar close — ensuring no future data leaks.

Ignoring Transaction Costs

Problem: Backtesting without fees and slippage.

Solution: HyperSync includes Hyperliquid trading fees and optional funding rate calculations.