What is net return?

1. A strategy starts a test period with $10,000 and ends it with $11,840.
2. Net return = (11,840 − 10,000) ÷ 10,000 × 100 = +18.4%.
3. That figure says nothing about how deep the losses were along the way. That's what max drawdown is for.

• Only half the picture. Two strategies with the same return can carry very different risk. Read net return next to max drawdown.
• Check the sample. A high return from a handful of trades is weaker evidence than a modest return from many.
• Past, not future. A backtested return describes history. It does not predict or guarantee future performance.

Related terms

• Max Drawdown →Max drawdown is the largest fall in a strategy's or account's value from a peak to a later low, expressed as a percentage of that peak.
• Backtesting →Backtesting is testing a trading strategy's rules on historical market data to estimate how the strategy would have performed in the past.
• Overfitting →Overfitting is when a trading strategy is tuned so closely to past data that it captures noise instead of a real pattern, and then fails on new data.