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of the least significant statistics of anyone manager or trading system is its returns. Returns lonely tell investors nought about the hazard required to approach those returns. For instance, how do we understand whether a 100% return is nice or bad? The question ought be it depends on the risk necessitated to get it. Who attentions if a few folk made 100% return if one even greater ratio of the investors lost always their money premier!
What does matter is RISK ADJUSTED RETURNS. Once we know how massive of a risk a system or manager took to reach a return it is then we can properly reckon the returns.
So how can we fathom risk modified representation? One of my preference ways is using the MAR Ratio. This is short as the Managed Account Reports Ratio. What MAR measures is the average yearly percentage return divided by the largest percentage drawdown. It is necessary investors use percentages and no raw profit or wastage greenback values in mandate for the ratio to be correct.
If, for instance [link widoczny dla zalogowanych], a manager or trading system had an average yearly return of 30% and at birth had a maximum drawdown of 15% then his MAR Ratio would be 2. In others words, 30 divided by 15 = 2.
What is an peerless MAR Ratio? To resolve this, I think 1 of the best locations to see is at the globe of professionally administered money. These managers are often the best of the best when it comes to merchants. In some cases, they have trace records 20 and 30 years old and have hundreds of millions or even billions of dollars below treatment. When we see at the best of those managers, they are LUCKY if they are capable to retain a MAR Ratio of 1! Meaning, if they have made an average of 30% a year, then they likewise presumable had a onetime largest drawdown of 30%.
I hope this sets off a few alarms in your brain. Traders should marvel how it is they penetrate products offering off the blueprint performance, when the best of the best cannot do it! They may have had a lucky time [link widoczny dla zalogowanych], merely 99.9 percentage of the time they took more risk than a trader would probably ever absence to take.
This article is about materialism, and what I think is really possible with top caliber trading systems and money managers. Keep in mind, I have developed trading systems for over 18 years and have won numerous rewards for them. Besides this, I have gone on to be a successful hedge fund manager preoccupying tens of millions of dollars in investment capital.
So what do I meditation is likely? The answer is a MAR Ratio of about 1.5 - 2.00. In additional words, an average annual percentage return about 1.5 to 2 times higher than the most percentage drawdown.
One of the best risk adjusted returns I have is my Relativity Trading System. I lift geared the leverage to the point that historically it shows about a 35% yearly return and about a 17% maximum drawdown. So the ratio is about 2 to 1. Keep in idea [link widoczny dla zalogowanych], the leverage can easily be doubled with the same account size and immediately it will shows returns of about 70%; whatever, the drawdown will go up to about 34%. In other words, it will maintain namely roughly 2 to 1 ratio.