Net Profit is the simplest and most foundational metric in your performance tear sheet. It represents the absolute capital gained or lost over the entire duration of the backtest or live trading window, factoring in all winning trades, losing trades, and fundamental yields.
Net Profit = Gross Profit - Gross Loss
Interpreting Net Profit
While Net Profit tells you how much money the system made, it should never be evaluated in isolation. A high Net Profit is meaningless if it required an unacceptable amount of structural risk to achieve.
Always cross-reference your Net Profit with:
- Maximum Drawdown: Did you have to suffer a 60% portfolio drop to achieve this profit?
- Starting Capital: A ₹1,00,000 profit is incredible on a ₹5,00,000 account, but highly inefficient on a ₹50,00,000 account.
For a more standardized way to compare profitability across different account sizes, look at the CAGR or Profit Factor metrics instead.
