How to Read an EA Backtest Report: Profit Factor, Sharpe, Drawdown

What a backtest is

A backtest replays your strategy rules over historical market data and tallies what would have happened had you traded them for the past couple of years. It answers "did these rules work in the past" — not "how much will I make in the future".

The core metrics

• Return: total profit/loss over the tested period. Never judge by it alone — always read it together with drawdown.
• Profit factor (PF): gross profit ÷ gross loss. Above 1 means a winning system; durable strategies typically sit between 1.2 and 2. A suspiciously high PF (say, above 5) usually means too few trades.
• Max drawdown: the deepest peak-to-trough fall in equity. It determines whether you can hold on — most people abandon a 30%-drawdown strategy right at the bottom.
• Sharpe ratio: return earned per unit of volatility; above 1 is decent.
• Trade count: below ~30 trades, the statistics are weak — good or bad results may just be luck.

The biggest trap: overfitting

Tweaking parameters until the historical curve looks perfect is overfitting — like a student memorizing the answer key, exposed the moment the exam changes. Two defenses: check the out-of-sample segment (scoring the strategy on market data it has never seen — TradingWithEA reports do this automatically), and keep rules simple — the more parameters, the easier it is to memorize answers.

Treat backtesting as a filter that weeds out bad strategies, not a crystal ball that predicts the future, and your expectations will be exactly right.