Summary

In this chapter, we familiarized ourselves with the most basic yet essential performance metrics. We understand now that there are three main aspects that help assess the strategy performance: trade analysis, alpha-related metrics such as returns, and beta-related metrics such as the volatility of returns and analysis of drawdowns. We learned about the main factors that always have a negative impact on performance, such as spread, slippage, commission, and overnight swaps, and we saw how we can realistically account for them in our assessment.

We have had a surface peek into the basics of capital management and considered alpha and beta, in a simplified form, but at least in a helpful enough way to improve our judgments regarding strategy. Finally, we carefully considered the leverage, saw its double-edged nature, and adopted the correct way of choosing the leverage for markets traded on margin, such as FX.

Of course, this chapter is only an introduction to the vast,...