Drawdown to annual return ratio

Hi,

I'm starting to finally get confindent in my trading skills, and I am now in the phase of trying different money management strategies. I think the ratio drawdown/annual return is one of the most important measures to compare different investments and I wonder if there is any site that someone knows where I can see this ratio for different type of investments. So I can compare with my own investment.

In Fx what would be a good ratio for an agressive investor, a moderate investor and a cautious investor?

It's 1:2 ratio good, for an agressive intestor? For example, DD 40% and AR 80%

Please share your views on this subject.

JFonseca

I agree - it is a very important measure. I don't know of any sites with that type of information.

I'm a conservative trader - I like minimal stress. I could never imagine having 40% drawdown. With a $500 account, not that big of a deal. But once your account gets relatively big (different for each trader), having 40% drawdown would be very challenging to your mind and body. Having said that...

A "safe" ratio for me (conservative) is about 1:20 (at a minimum), although I aim for and have achieved better than that. That leads to minimal stress.

1:2 ratio certainly would be aggressive. I could never imagine going lower than about 1:10 or so for the yearly ratio, but that's me. But then again, I've never even been close to blowing an account.

However, I prefer to monitor the drawdown/monthly return ratio. For me, 1:4 is the "safe" ratio for the monthly.

Good luck with your trading!

I am not sure where you can check this, though I would be pretty sure this info would be available, maybe some google sleuthing is the best bet

I work with investment firms and I source traders for them, they like a draw down of under 10%.

40% is too huge. If its 100k that's 40k in red. Its not even trading. More like buy and hold and hope. And tank against a trend. How often did will end up? Most will margin call eventually. Take dd as of risk per bet. My dd is 2-5% . Growth is about 8-10% p m .

Just 1 time a trader short at top or long at bottom and breakout happen. They are gone. Not to forget most breakout run 500-1000 pip. Yen run 1000-2000 . How long to tank a dd and hope things turn around ? Martingale and avg will also just speed up death call

Well, considering that most forex traders fail to profit, anything better than 1:1 is above average.

Although annual return can be an indicator that a trader may not be just an average punter, it doesn't necessarily mean they are great risk managers. I wouldn't put too much stock in a 1 year performance, IMO. One year can have deceiving variance.

confident and 40% DD is not what trading is about
http://www.businessinsider.com/colin...s-grant-2013-9

hey there .. i do not mean to badge in on that .. but this is somethings I just thinking of as well as I have added an test-account to myfxbook and it shows 73% drawdown
but that was not always like this .. its just the Max .. and yes i did get 2 margin-calls on a -8 pip position .. (haha yeah o know)

anyhow, back to the topic:

your DD is 5% and you gain 10% that means you r average win-loss ratio is 1:2 ? right ?
well, that is kind of a stupid statement (i just realised while writing it) but want to keep it for others to jump on it.

okay another scenario: I trade momentum so I usually have a max drawdown of 2% per trade as after the Stoploss will terminate it
after the stop loss is hit, my drawdown is 0% but my balance is 2% down

so it's kind of hard to find a good way I guess. hope this inspire someone to badge in on that

alright back to my 73% drawdown strategy:
it did btw gain 521% on a 79% drawdown .. I do this via hedges and yes the drawdown is usually MUCH higher than the reward. but this is only for the non-momentum trade that being hedged.

so using my hypothetical formula above with your 5% DD vs 10% gain against my 73% dd vs 520% gain
is simply 1:2 vs. 1:7

yes, I know more capital at risk of course but due to the hedges, the drawdown is very much controllable.

here is the result: http://www.myfxbook.com/members/nullx8/mot/1700082
as you can see I never have more sell than buy open or vice versa .. so its not a martingale thing .. just keeps as much money in the market as possible.
this is also against my believe since I do mainly day-trade momentum with my real money account, usually have no drawdown and if the Stoploss is really close to it

so the main question is how to calculate the drawdown .

if i buy and sell at the same time one position will have a large loss .. and this will count as drawdown right ?
where the other position is winning and it couters the drawdown to the distance between both orders.

but seeing both positions separately .. yes there is a large drawdown indeed...

so i guess Drawdown is based on the strategy as well.

or what do i miss ?

Yes, variance certainly plays a role here but it also depends on how many trades are taken in that said 1 year. Thus it depends on the timeframe because if it's a shorter timeframe, then there can be many trades in 1 year and if it's a longer timeframe then number of trades would be much smaller.