C2 cutoff statistics of Ratio of Excursion to Profit

Trading and Markets
1

Anyone knows where the cutoff statistics “below 1.0” and “above 1.0” came from?

The Ratio of Excursion to Profit is a magnifying glass on the risk embedded within a trading system. It is a core concept in trading system evaluation: the efficiency of profit capture relative to risk taken. A high ratio could be a warning light that significant drawdowns are not just possible, but a fundamental characteristic of the system’s design.

A system with an E/P of 5.5 is far riskier than the same profit from a system with an E/P of 1.9. However, not quite sure where the cutoff statistics “below 1.0” and “above 1.0” came from?

In essence, the goal for the investors is to seek a system with an acceptable Net Profit, a Max Drawdown you can psychologically and financially withstand, and the lowest possible E/P Ratio that achieves that combination. This represents an efficient, robust strategy.

2

I’m not sure where the cutoff came from. It is my favorite statistic. I usually look for systems with a ratio 0.4 or below. If you take a look at the stats for ares, proven to be one of the most robust strategies on C2, this metric (Avg(MAE) / Avg(PL) - Winning trades) is a mere 0.115.

3

Okay, Let’s break down the terms of the ratio.

  1. Defining the Terms

· Excursion: This generally refers to the total movement of a trade in your favor before it is closed. It’s often called “Gross Profit” (the sum of all profitable trades).
· Profit (Net Profit): This is the final profit after accounting for losing trades. It’s Gross Profit - Gross Loss.

  1. The “Ratio of Excursion to Profit”

It much likes the Profit Factor, though it’s slightly different.

· Assuming Profit Factor = Gross Profit / Gross Loss.
· A value > 1 means the system is profitable.
· A value of 2 means you make $2 for every $1 you lose.
· Your described ratio, Excursion to Net Profit (E/P), would be:
· E/P Ratio = Gross Profit / Net Profit

Interpretation of the E/P Ratio:

· It measures how “efficiently” your system translates favorable price movement into realized net profit.
· A lower E/P ratio is better.
· Example-1 (Low E/P = Efficient): Gross Profit = $12,000, Gross Loss = $2,000. Net Profit = $10,000.
· E/P = 12,000 / 10,000 = 1.2
· This system keeps most of its gains. Losing trades are small and infrequent relative to winners.

· Example-2 (High E/P = Inefficient): Gross Profit = $55,000, Gross Loss = $45,000. Net Profit = $10,000.
· E/P = 55,000 / 10,000 = 5.5
· This system gives back a huge portion of its paper gains. It experiences large losses, resulting in the same net profit with much more churn and volatility.

· Example-3 (Moderate - Low E/P): Gross Profit = $19,000, Gross Loss = $9,000. Net Profit = $10,000.
· E/P = 19,000 / 10,000 = 1.9
· In this case, E/P 1.9 is not so bad.

Correct me if I am wrong.

4

I believe you’re describing something different in two ways. #1 we’re talking about Adverse excursions only, not movement of the trade in your favor… so, it means the maximum drawdowns within a trade before ending in a profit (because #2 we’re only looking at the Winning trades here). So if a strat has 10 winning trades, you take the average intratrade MDD for each trade divided by the average profit for those trades. That’s why it’s called “Avg(MAE) / Avg(PL) - Winning trades”. Trades that average down during a drawdown to reduce losses and then close with a minimal profit drive up this metric above 1.0.

5

Both posts from JJ are approx 80%-85% AI written. So maybe we are helping to teach finance AI here.

7

If it refers “Avg(MAE) / Avg(PL) - Winning trades” (instead of “The Ratio of Excursion to Profit”), the title of the following warning sign should be changed or rewritten:

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It is my understanding that “Avg(MAE) / Avg(PL) - Winning trades” can be used for Strategy Refinement. High ratio suggests need for better entry signals, but sill OK for high-win-rate system if there are tightening stops to control the max DD.

8

YMMV, as they say. You go ahead and invest with your understanding of the meaning of words, and I’ll stick with mine. I found the warning (beyond the headline) quite explicit and explanatory.

9

Here I give an example of 2.0 Ratio of (MAE) / (PL) - Winning Trade, using today’s ES One-min Chart:

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In this case, you entered long @ 6953. Because your intrady stoploss limit is 24pts ( 50% of 5-day ATR 48pts), you didn’t get out when ES hit intraday low @ 6941. So there was a drawdown of 12 pts. This position was closed @ 6959, with 6pts profit. This is a wining trade, with (MAE) / (PL) Ratio of 2.0 (12/6). My point is, if you use a proper stop to limit your loss and well control the max DD, your system is still OK (although Lowest possible Ratio is better).

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10

There are another two questions:

(1) It said that 43.6% of strategies with ratio >1 lose money over 180days - so another 56.4% of strategies with ratio >1 make money over 180days?

(2) Taking a look at the stats for ares, proven to be one of the most robust strategies on C2, this metric (Avg(MAE) / Avg(PL) - Winning trades) is a mere 0.115.

However, his Annual Return of yr2025 is only 5%, much lower than others.

Currently, there are 10 futures strategies listed in C2 Leader Board. Their average Ratio of (Avg(MAE) / Avg(PL) - Winning trades) is 0.96, Max Drawdown is 29.2%. There is NO correlation between the ratio and MDD ( => low ratio doesn’t mean low risk).

11

I agree that a low ratio does not mean low risk. I also agree that it does not insure high profits, as you pointed out with the 2025 returns of ares. However, I do believe there is a HIGH correlation of systems that blow up and those with a high ratio. I can provide many recent examples, but don’t have the time or motivation to do the level of analysis needed to prove this theory.

12

Avg(MAE) / Avg(PL) - Winning Trades Only is a measure of entry precision and winner management. It filters out all losing trades and look only at the trades that ended in a profit.

ARES’ winning trades are well-managed with minimal drawdown. He has good entries/exits on the profitable side.

But his All Trades ratio (6.63) is much worse than his Winning Trades ratio.

Since his profitable rate is only 36.1%, another 63.9% is not profitable. High All Trades ratio (6.63) could be caused by the damaging effect of those 63.9% losing trades.

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