Total & Annualized Return

What are Total and Annualized Return?

Total return is the simplest measure of how your strategy performed: what percentage did your portfolio grow (or shrink) from the start of the backtest to the end? If you started with $10,000 and ended with $13,000, your total return is 30%.

Annualized return converts that total return into a yearly rate. Think of it like converting a speed from "miles per trip" to "miles per hour" -- it standardizes your result so you can compare strategies that ran for different lengths of time.

How Total Return is Calculated

Simula tracks your portfolio's equity as a multiplier that starts at 1.0. If your strategy gains 30%, the equity ends at 1.30. If it loses 10%, the equity ends at 0.90. Total return is simply how far that multiplier moved from 1.0:

In plain English: take the final value of your equity curve, subtract 1 (the starting value), and multiply by 100 to get a percentage. A result of 30 means the strategy gained 30%. A result of -10 means it lost 10%.

How Annualized Return is Calculated

Annualized return answers: "If this strategy kept performing at the same rate, what would it return in exactly one year?" It accounts for compounding -- the fact that gains build on previous gains.

In plain English: raise the final equity value to the power of (1 divided by the number of years the backtest covered), subtract 1, and multiply by 100. The exponent converts the total growth into a per-year growth rate that accounts for compounding.

Simula calculates the number of years using calendar days: years = (end date - start date) / 365.25.

Worked Examples

Reading Your Results

Total Return

Annualized Return

Things to Watch Out For

Short backtests inflate annualized return

As the third example shows, a small gain over a short period can produce a very large annualized return. This is mathematically correct but can be misleading -- the strategy has not actually been tested over a full year. Be cautious about reading too much into annualized return when your backtest covers only a few weeks or months. See Statistical Significance & Trade Count and Timeframes & Data for guidance on choosing date ranges that produce meaningful results.

Return does not show the path

Total return only tells you where you started and where you ended. It does not tell you what happened in between. A strategy that returned 20% with a smooth upward curve is very different from one that returned 20% after a 50% drawdown and a massive recovery. Use max drawdown and volatility to understand the journey, not just the destination.

Return figures do not account for trading costs unless you configure them -- a 20% return before spreads and commissions may look very different after them. When costs are enabled, the Transaction Cost Analysis card in your results shows both the gross return and the net return side by side.

Leverage multiplies returns

If your strategy uses leverage, both gains and losses are multiplied. A 10% total return at 1x leverage becomes 20% at 2x and 50% at 5x -- but so do losses. Simula shows returns for each leverage level separately.

Annualized return assumes consistent compounding

The annualized return formula assumes growth happens at a steady compound rate. In practice, returns are uneven -- a strategy might gain heavily in one month and lose in the next. The annualized figure is a useful standardization, but it smooths over the actual variation in performance.

An open position at the end is counted at the final price

If your strategy is still holding a position on the last candle, that position has not realized a profit or loss yet -- but it still has unrealized value. Simula closes it at the final candle's close price (a Backtest End exit) and includes that unrealized profit or loss in your total return. So part of your return can come from a position the market never actually let your rules close.

This is reflected consistently everywhere: the same Backtest End trade is counted in your win rate and expectancy and your trade count, and it matches the equity curve the return is measured from. If that final position is deep in the red, your total return carries that loss even though no exit rule fired. For more on why this matters most on short tests, see Limitations & Pitfalls.

Related Metrics

Sharpe Ratio -- measures return per unit of volatility. Tells you whether your return came with a smooth or bumpy ride.

Calmar Ratio -- divides annualized return by max drawdown. Tells you how much return you earned per unit of worst-case decline.

Max Drawdown -- the largest peak-to-trough decline. Pairs with return to give a picture of reward versus risk.

Alpha -- measures the return your strategy generated beyond what would be expected from the asset's own movement. Uses annualized return in its calculation.