Annual Returns
The Annual Return chart presents the strategy's yearly returns individually while also reporting the average annual return over the backtest period.
A key indicator of a strong strategy is consistency across different years, meaning annual return should be relatively stable. This can be visually assessed using this chart. If yearly returns are similar and close to the average annual return, the strategy demonstrates consistency. However, if there are significant variations in annual returns over time, even with an overall positive return, it indicates that the strategy lacks consistency which can pose risks and challenges.
Key Considerations
Stable strategies should have consistent annual returns, meaning the annual return should not fluctuate significantly from year to year.
A strategy with an overall positive return but one or two years of negative annual returns is unreliable, as its performance is highly dependent on market conditions.