What is the Sharpe Ratio?

It measures volatility. A high Sharpe Ratio (>1.0) means the equity curve goes up smoothly (45-degree angle). A low Sharpe Ratio means erratic, volatile returns. Funds prefer High Sharpe.

How many years of data do I need?

For manual trading, 1-2 years is enough to see different seasons. For Algo trading, 5-10 years is standard to cover major economic shifts (e.g., 2008 Crash, COVID, Inflation Era).

My backtest is profitable, but I lose live. Why?

Three reasons: 1. Slippage/Spreads (not accounted for), 2. Psychology (you skipped trades), 3. Over-optimization (Curve Fitting). Start with a Demo account first.

What is 'Curve Fitting'?

It's tweaking your parameters (e.g., changing RSI from 14 to 13.5) just to make the past look perfect. It's cheating. The future will not look like the past.

Does 'Sortino Ratio' matter?

Yes, it's like Sharpe Ratio but only penalizes downside volatility. It is often a better metric for aggressive strategies.

Should I include 'Swap Fees' in backtesting?

ABSOLUTELY. For Swing Traders, negative swap can turn a profitable strategy into a losing one. Use tick data software that simulates real swap rates.

Trading Education

Key Backtesting Metrics: Win Rate, Drawdown & Profit Factor

Stop looking at just 'Net Profit'. Learn why Max Drawdown and Profit Factor are the only numbers that matter for long-term survival.

Written BySarah ChenSenior Financial Analyst

Fact Checked ByJames AndersonChief Editor & Lead Analyst

Last UpdatedDec 16, 2026

This article content is currently being updated. Please check back soon.

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Sarah Chen

Fundamental Analysis • Macroeconomics • Currency Trends

About the Author

Sarah brings 12 years of Wall Street experience, having worked as a senior currency analyst for top-tier hedge funds. Her expertise lies in fundamental analysis and macroeconomic trends affecting global currency markets. She heads our broker verification process.

Senior Financial Analyst — Everything you find on BrokerAnalysis is based on reliable data and unbiased information. We combine our 10+ years finance experience with readers feedback.

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