Strategy Testing Checklist

Step 1: Simple backtest

Passing criteria: At least 70% of parameter iterations should be profitable.

• Total net profit: >20% of initial balance
• Profit factor: >1
• Number of Trades: 30 - 100 trades
• Avg. Trade net profit: >= 1% balance
• Maximum drawdown: <20% of initial balance
• Slippage & commission must be included

Step 2: Monkey testing

Passing criteria: Your strategy should outperform >90% of random monkey runs.

• >90% better than random

Step 3: Walk-Forward Analysis

Passing criteria: At least 70% of parameter iterations should be profitable.

• Equity Curve Slope: Must be positive
• Curve Stability: No massive flat periods or "cliffs" where performance collapses
• Return/DD Ratio (WFA): > 2.0
• Total net profit: >30% of initial balance
• Profit factor: >1.5
• Number of Trades: 100 - 500 trades
• Avg. Trade net profit: >= 1% balance
• Maximum drawdown: < 30% of initial balance
• Slippage & commission must be included

Step 4: Monte Carlo Simulation

• Risk of Ruin: < 10%
• Median Max Drawdown: < 40%
• Return/ Drawdown ratio: > 2.0
• Median Annual Return: > 40%
• Step 5: Strategy Incubation
• Survived for 1 - 2 months
• Profit factor: >1.5
• Maximum drawdown: < 20% of initial balance
• Maximum daily drawdown: < 5% of initial balance
• Maximum weekly drawdown: < 10% of initial balance

Step 6: Live Trading and Ongoing Monitoring

• Set position size and risk based on Monte Carlo results.
• Regularly repeat Monkey Tests and Walk-Forward Analysis to ensure the edge persists.