TradeStation Walk-Forward Optimizer

Test Results - Criteria

After a walk-forward optimization has been completed, the Test Results tab produces a summary of the test criteria for the selected walk-forward analysis. The summary is user friendly and includes a comment about why a specific test criteria passed or failed.

Using the default settings, a trading strategy passes a walk-forward analysis if:

  1. It is overall profitable AND
  2. shows a Walk-Forward Efficiency of 50% or better AND
  3. 50% or more of all walk-forward tests were profitable AND
  4. shows an even distribution of profit, i.e. no individual time period contributed 50% or more of total net profit AND
  5. has a Maximum drawdown of less than 40%

If the strategy fail any of the individual tests, the strategy is failed overall and is deemed not suitable for real-time implementation / trading.

Since performance evaluation is something personal, WFO allows users to set the pass/fail percentages themselves using the Setup, Test Criteria Settings option. Note that the Initial capital setting is very important because it is used for all Maximum drawdown % calculations. 

The possible test result outcomes can be summarized as follow:

Test Criteria Result Condition
Overall Profitability P Total Profit > 0
F Total Profit <= 0
Walk-forward Robustness PD Walk-Forward Efficiency >= 100%
P Walk-Forward Efficiency >= 50%
F Walk-Forward Efficiency < 50%
Consistency of profits PD 80%+ of walk-forward tests were profitable
P 50%+ of walk-forward tests were profitable
F <50% of walk-forward tests were profitable
Distribution of profits P No individual time period contributed 50%+ of total net profit
F One of the walk-forward runs contributed 50%+ of total net profit
Maximum drawdown P Maximum drawdown did not exceed 40% during any single run
F Maximum drawdown exceeded 40%
Key: PD = Pass with distinction (Pass**)
P = Pass
F = Failed

The Sensitivity Analysis tab lets you study the impact that a variations in a specific input may have on the performance of your strategy.  Refer to Sensitivity Analysis for more information.