How to Check Trading Signal Statistics: 7 Questions to Ask

A win rate alone says little. Which numbers show the real quality of trading signals - sample size, R multiples, profit factor, drawdown and a complete history.

Almost every signal service shows an attractive number: "85% winning trades". The trouble is that this number alone tells you almost nothing about whether you will make money. Here are seven questions that separate honest statistics from advertising. They apply to any service, ours included.

1. How many trades are in the sample?

Ten winners in a row can happen to anyone. Conclusions make sense from several hundred closed signals, taken across different market conditions: quiet ranges, strong trends, news weeks. A result from one good week is a shop window, not statistics.

2. Does the history contain every signal, including the losers?

The most common trick is to show only what worked. An honest history lists every published signal with its outcome, stop-outs included. A good sign is that every signal has a publication time, entry, stop and targets recorded before the outcome was known.

3. Is the result measured in pips, percent or R?

A pip on gold and a pip on EUR/USD are different money, so adding them up is meaningless. The most useful unit is R: 1R is the amount you risk on a trade, the distance to the stop. A trade that made +2R earned twice what was risked. Results in R compare across instruments and convert to money for your own account: with 100 USD risked per trade, +10R is +1,000 USD.

4. What is the profit factor?

Profit factor is the sum of all profits divided by the sum of all losses. Above 1 means the system earns more than it loses. 1.2 to 1.5 is a realistic range for a working strategy; values like 5 or 10 on a large sample almost always mean something was removed from the statistics.

5. Why the win rate alone misleads

A strategy with 80% winners can lose money if the rare losses are many times larger than the frequent small wins. A strategy with 45% winners can be profitable if the average win is twice the average loss. That is why the win rate is read only together with the average result in R and the profit factor.

6. What was the maximum drawdown?

Drawdown is the deepest fall of the account from a previous peak. It answers a practical question: how many bad weeks in a row you would have to sit through. If a service shows no equity curve and no drawdown, you do not know what the road to the final number looked like.

7. Can you view periods separately?

An "all time" result can hide a weak last month. Honest statistics let you look at a week, a month, a quarter and individual instruments. Weaker recent results are normal in markets; hiding them is not.

Short checklist

• several hundred closed signals or more;
• losing trades are in the history;
• results in R, not only a win rate;
• profit factor and maximum drawdown shown explicitly;
• you can pick the period and the instrument.

No statistics guarantee future results, and trading financial markets carries a high risk of losing money. A verified history at least shows how a system behaved in the past rather than how it is being sold.