# Performance, Backtesting & Validation

> Return, risk and trade metrics plus the anti-overfitting methodology: the honesty layer.

Validation is where a trading idea meets evidence. This family collects the metrics used to summarize performance, such as win rate and the Sharpe ratio, alongside the methodology that keeps those numbers honest: testing on data the strategy has never seen and checking that results survive small changes in settings.

The recurring theme is that an impressive backtest is easy to produce and easy to misread. A high win rate can coexist with poor risk-reward, a strong Sharpe ratio can mask tail risk, and any metric can be inflated by fitting parameters to history. The entries here explain what each number does and does not tell you, and how to structure tests so a good result is more likely to reflect a real effect than a curve fit.

## Return/risk metrics

Measures that weigh returns against the risk taken to earn them, with the Sharpe ratio as the standard reference point.

- [Sharpe Ratio](https://www.luxalgo.com/library/concept/sharpe-ratio.md): 1 implementations
- [Sortino Ratio](https://www.luxalgo.com/library/concept/sortino-ratio.md): 1 implementations
- [Information Ratio](https://www.luxalgo.com/library/concept/information-ratio.md): 1 implementations
- [Extended Risk-adjusted Ratios](https://www.luxalgo.com/library/concept/extended-risk-adjusted-ratios.md): 1 implementations
- [Drawdown Statistics](https://www.luxalgo.com/library/concept/drawdown-statistics.md): 1 implementations
- [Martin Ratio](https://www.luxalgo.com/library/concept/martin-ratio.md): 1 implementations
- [Significance of Returns](https://www.luxalgo.com/library/concept/significance-of-returns.md): 1 implementations
- [CAGR](https://www.luxalgo.com/library/concept/cagr.md): reference entry
- [Calmar Ratio](https://www.luxalgo.com/library/concept/calmar-ratio.md): reference entry
- [SQN](https://www.luxalgo.com/library/concept/sqn.md): reference entry

## Trade metrics

Statistics built from individual trade outcomes, where a number like win rate only becomes meaningful next to average win and loss size.

- [Win Rate](https://www.luxalgo.com/library/concept/win-rate.md): 1 implementations
- [Cost Sensitivity](https://www.luxalgo.com/library/concept/cost-sensitivity.md): 1 implementations
- [Profit Factor](https://www.luxalgo.com/library/concept/profit-factor.md): reference entry
- [Expectancy](https://www.luxalgo.com/library/concept/expectancy.md): reference entry
- [Throughput Stats](https://www.luxalgo.com/library/concept/throughput-stats.md): reference entry
- [MAE/MFE Distributions](https://www.luxalgo.com/library/concept/mae-mfe-distributions.md): build pending

## Validation methodology

Procedures that help separate genuine edges from curve fits, including holding out unseen data and checking stability across nearby parameter values.

- [In-sample / Out-of-sample Split](https://www.luxalgo.com/library/concept/in-sample-out-of-sample-split.md): 1 implementations
- [Purged Cross-validation](https://www.luxalgo.com/library/concept/purged-cross-validation.md): 1 implementations
- [Parameter Stability](https://www.luxalgo.com/library/concept/parameter-stability.md): 1 implementations
- [Robustness Testing](https://www.luxalgo.com/library/concept/robustness-testing.md): 1 implementations
- [Multiple-testing Correction](https://www.luxalgo.com/library/concept/multiple-testing-correction.md): 1 implementations
- [Deflated Sharpe Ratio](https://www.luxalgo.com/library/concept/deflated-sharpe-ratio.md): 1 implementations
- [Bias Taxonomy](https://www.luxalgo.com/library/concept/bias-taxonomy.md): 1 implementations
- [Cost-model Realism](https://www.luxalgo.com/library/concept/cost-model-realism.md): 1 implementations
- [Benchmark Comparison Discipline](https://www.luxalgo.com/library/concept/benchmark-comparison-discipline.md): 1 implementations
- [Walk-forward Analysis](https://www.luxalgo.com/library/concept/walk-forward-analysis.md): reference entry
- [Randomization Tests](https://www.luxalgo.com/library/concept/randomization-tests.md): build pending
- [Probability of Backtest Overfitting](https://www.luxalgo.com/library/concept/probability-of-backtest-overfitting.md): build pending
- [Forward/paper-trading Confirmation](https://www.luxalgo.com/library/concept/forward-paper-trading-confirmation.md): reference entry
- [Live Decay Tracking](https://www.luxalgo.com/library/concept/live-decay-tracking.md): reference entry

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Source: https://www.luxalgo.com/library/family/validation/ (LuxAlgo Library). Free to use with attribution: https://www.luxalgo.com/library/license/