Most real strategies need hundreds of trades, not dozens, before you can rule out luck. Fat-tailed strategies need even more.
"Up 40% in three months, verified." It sounds convincing. Statistically, it usually is not.
#Luck is very good at short streaks
Flip a fair coin 30 times and you will often see a run of six or seven heads. Give a few thousand random strategies three months each, and some will look brilliant purely by chance. Those are the ones that get marketed.
#A better question
Instead of "how much did it make?", ask "how likely is it that the true edge is above zero?". Researchers Bailey and Lopez de Prado gave a practical answer: the sharpe ratio" tabindex="0">probabilistic Sharpe ratio.
It takes three things into account:
- The Sharpe ratio: average return divided by its volatility.
- The number of observations: more trades means more confidence.
- The shape of returns: fat tails and big negative surprises reduce confidence.
From the same work comes the minimum track record length: how many trades you need before luck can be ruled out at, say, 95% confidence.
#Rules of thumb
| Per-trade Sharpe | Rough trades needed (95%) |
|---|---|
| 0.30 | around 30 |
| 0.20 | around 70 |
| 0.10 | around 270 |
| 0.05 | over 1,000 |
Most real strategies sit in the 0.05 to 0.2 range per trade. That means hundreds of trades, not dozens. Fat-tailed strategies like martingale need even more, because one rare loss dominates everything.
#What to do with this
- Treat anything under 100 trades as a demo, not a record.
- Ask for the full history, not a chosen window.
- Check that results hold up across different years and market moods.
The Bot X-ray computes the probabilistic Sharpe ratio and minimum track record length for any history you upload.
Rules of thumb
- Short records are mostly noise.
- Confidence depends on edge, sample size and the shape of returns.
- Ask "how sure are we?" before "how much did it make?".
Changes to this article
Oct 2, 2026: reviewed and updated. First published Oct 2, 2026. Spotted a mistake? Tell us, and we will fix it and note it here.
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