Strategy Backtesting for Prop Firms

Standard backtesting measures strategy performance in isolation. Prop-firm-constrained backtesting applies the firm's specific rules as termination conditions: the backtest stops not just when capital runs out, but whenever a daily loss limit or drawdown floor would have been breached. This reveals whether the strategy is survivable under the firm's rules, not just whether it is ultimately profitable.

For example, a strategy might show a 40% max drawdown over 3 years of backtested trading -- clearly profitable long-term, but every firm would have terminated the account dozens of times before reaching that profitability. Constrained backtesting surfaces this problem before you pay an evaluation fee.

Key metrics to extract from prop-firm-constrained backtesting: evaluation pass rate (what percentage of 3-month simulated evaluation windows result in passing the evaluation), funded account survival rate (what percentage of 6-month funded windows avoid drawdown termination), and expected payouts per year. Firms with EOD trailing drawdown (TopStep) require different parameter tuning than firms with static drawdown (FTMO) -- the same strategy may pass FTMO evaluations consistently but blow TopStep accounts regularly due to the floor-rise dynamic.