What is a Strategy Report in Backtesting?

Ever placed a trade and wondered if your idea would actually work over years of data? That is exactly what a strategy report tells you. It is the scorecard that comes out of a backtest, showing how a set of rules would have performed on past prices. If you are learning what is algorithmic trading in India, the strategy report is the document you will spend most of your time reading.

Think of it like a school report card for your trading idea. Numbers, charts, and a list of every trade. Some metrics tell you about returns, others warn you about pain. You need both to judge a strategy fairly.

What is algorithmic trading in India and why reports matter

Algorithmic trading means letting code place orders on your behalf using fixed rules. SEBI allows it on NSE and BSE, and most active brokers offer API access. Before any code goes live with real money, traders run it on history first. The output of that test is the strategy report.

The report answers one question: would these rules have made money, and at what cost? You see profit, yes, but also losing streaks, fees, and missed fills. Without this, you are just guessing.

The equity curve and drawdown

The first chart you usually open is the equity curve. It plots the value of your account over time, starting from one lakh or whatever you chose. A smooth, rising line is the dream. A jagged one with deep dips is the reality.

The dips have a name: drawdown. It is the drop from a recent high to the next low, shown in percent. Imagine your account hits ten lakh, then falls to seven lakh before recovering. That is a thirty percent drawdown. Ask yourself honestly: could you sit through that without quitting?

• Max drawdown: the worst peak-to-valley fall in the whole test.
• Average drawdown: the typical dip you should expect.
• Recovery time: how long it took to make new highs.

Return and risk metrics in algo trading reports

Returns alone are not enough. You also need to know how much risk you took to earn them. This section is where most algo trading reports in India get serious.

CAGR

CAGR stands for compound annual growth rate. It smooths your total return into a yearly number. If your strategy turned one lakh into two lakh in five years, your CAGR is around 14.9 percent. Use it to compare against simple options like a Nifty index fund.

Sharpe ratio

The Sharpe ratio divides extra return by total volatility. Above 1 is decent, above 2 is good, above 3 is rare and worth double-checking. A high Sharpe means your gains were steady, not lucky.

Sortino ratio

The Sortino ratio is like Sharpe, but it only counts downside swings. Many traders prefer it because upside volatility is not really a problem. You can read more about market metrics on the official NSE site.

Trade quality: hit rate and average win or loss

Now zoom into the trades themselves. The hit rate is the percent of trades that closed in profit. Beginners chase a high number, but 45 percent can still be very profitable if winners are bigger than losers.

That is why you also check the average win to average loss ratio. If you win 1500 rupees on average and lose 1000 rupees on average, your ratio is 1.5. Pair that with hit rate to see the full picture.

• Number of trades: a tiny sample (say 20 trades) means luck could explain the result.
• Trade list: every entry, exit, holding time, and P&L. Scan it for outliers.
• Best and worst trade: one giant winner can hide a weak strategy.

Costs, exposure, and walk-forward results

This is where many backtests quietly lie. A clean report tells you the real-world frictions.

Slippage assumption is the cost added per trade to model the gap between expected and actual fill price. For Indian intraday equity, traders often add 0.05 to 0.10 percent per side. Without it, results look better than they will be.

Exposure shows what percent of the time your money was actually in the market. A strategy with 20 percent exposure earning 15 percent CAGR is more efficient than one fully invested for the same return. Walk-forward results test the rules on data the system never saw during design. If the metrics hold up here, you have something real. If they collapse, the strategy was likely curve-fitted to history.

Frequently asked questions

Is a high CAGR enough to pick a strategy?

No. A 40 percent CAGR with a 60 percent drawdown is unusable for most people. Always read CAGR alongside max drawdown and Sharpe.

What is a good Sharpe ratio for Indian intraday strategies?

Anything above 1.5 after costs is respectable. Above 2.5 is excellent but rare and deserves a careful audit for data errors.

Why does my live result differ from the backtest?

Three usual suspects: slippage was underestimated, the dataset had look-ahead bias, or the rules were over-fit. A walk-forward test catches most of these.

How many trades should a report contain to trust it?Aim for at least 100 trades, ideally across different market phases like 2018, 2020, and 2022. Small samples are basically coin flips.