A strategy's risk profile can include drawdowns, loss frequency, exposure concentration, liquidity, leverage and sensitivity to unusual market events. It describes how the strategy can fail, not merely whether it was profitable in one period.
Profiles should be based on enough observations and realistic execution data. A small positive return can still be unattractive when it required much larger temporary losses or depends on rare fills that may not continue.
ELI5
A risk profile describes the ways a trading strategy might lose money and how large those losses could be. It gives context that an ending profit number cannot show by itself.
For example, earning 3.5 percent may look good until the record shows a much larger drawdown during the same month. That combination can make the strategy less attractive than another strategy with steadier results.
