Sample size, expectancy, adherence and drawdown — four metrics that answer the question P&L cannot.
Key takeaways
- Fewer than fifty trades is not a sample, it is an anecdote.
- Expectancy per trade is the core measure of edge.
- Adherence rate separates a bad strategy from bad execution.
P&L alone cannot tell you whether a strategy works, because a small sample of a good strategy can lose and a small sample of a bad one can win. Start by insisting on sample size — fifty trades minimum, ideally more.
Compute expectancy: average win times win rate, minus average loss times loss rate, net of costs. A positive number is an edge; the size of that number tells you how much variance you must tolerate to collect it.
Then measure adherence: what share of trades followed the written rules. If adherence is 70%, you have not tested the strategy — you have tested a hybrid of the strategy and your improvisation, and improving execution will change everything.
Finally, look at maximum drawdown in the sample and ask whether you would have continued trading through it. A strategy you will abandon during a normal drawdown is not a viable strategy for you, regardless of its statistics.
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