Interpret the metrics and charts that a strategy backtest reports

A backtest report usually shows cumulative return charts, average returns, volatility, the Sharpe ratio, maximum drawdown, turnover, and the information coefficient or hit rate of the signal. Because strategy returns are often non-normal, it may also show skewness, excess kurtosis, downside deviation, VaR and conditional VaR, plus rolling performance across periods. Negative skewness and fat tails mean the Sharpe ratio flatters a strategy, since standard deviation understates the chance of large losses. A monthly Sharpe ratio is annualised by multiplying by the square root of 12. The trap is judging a strategy on average return and Sharpe ratio alone when drawdowns and tails tell a different story.