which 1 more priority do i need for confirm my strategy most stability for lonng term running?, except CAGR/Max DD% and Sharp Ratio

When focusing on long-term stability for your strategy, aside from CAGR/Max DD% and Sharpe Ratio, the most critical metric to consider is Profit Factor. However, other important factors like Stability and Open Drawdown (DD) also play key roles in assessing the reliability of your strategy. Let’s explore these metrics:

1. Profit Factor:

  • What it Measures: The ratio of gross profit to gross loss. For example, a profit factor of 1.5 means that for every dollar lost, you are making 1.5 dollars in profit.
  • Importance: A higher profit factor (typically > 1.5) is crucial for long-term viability. It shows that the strategy generates more profit than loss over time.
  • Why It’s Key for Long-Term Stability: It directly reflects the strategy's overall profitability, indicating whether it can sustain profitability through different market conditions.
  • Ideal Target: Profit Factor above 1.5 is solid, while a value of 2.0 or more is very strong.

2. Stability of Returns (Stability):

  • What it Measures: The consistency of your strategy’s performance over time. It looks at the smoothness of the equity curve.
  • Importance: Stability indicates how reliable the strategy is at generating returns without significant fluctuations.
  • Why It’s Key for Long-Term Stability: A stable equity curve suggests that your strategy can withstand various market environments without experiencing wild swings in performance.
  • Ideal Target: Aim for a stability score close to 1, where 1 represents a perfectly straight equity curve.

3. Open Drawdown (Open DD%):

  • What it Measures: The maximum unrealized loss during a trade (before it’s closed).
  • Importance: While Max Drawdown focuses on the worst drawdown for closed trades, Open DD% shows how much risk your strategy takes while trades are still open.
  • Why It’s Key for Long-Term Stability: High open drawdowns can cause emotional stress and can put your account at risk, especially during volatile periods. Keeping open drawdowns low ensures your strategy can withstand market swings without large floating losses.
  • Ideal Target: Aiming for Open DD% < 10-15% is generally considered good for long-term sustainability.

Summary of Metrics (Besides CAGR/Max DD% and Sharpe Ratio):

  1. Profit Factor (Most Important): Reflects the overall profitability of your strategy. Target >1.5, ideally >2.
  2. Stability: Measures how smooth and reliable your equity curve is. Aim for a stability score near 1.
  3. Open Drawdown %: Keep this value as low as possible to avoid large floating losses. Aim for <10-15%.

Focusing on these three metrics will help confirm your strategy’s long-term stability and profitability, making it robust enough to withstand different market conditions.

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