For total return I will use Simple %pa for the first 12 months and Compound Annual Growth Rate (CAGR), http://www.investopedia.com/terms/c/cagr.asp thereafter. Month on month % return is used as I draw USD1000 per month from this account for living expenses.
- Risk, on average I am risking 2% of capital per trade.
- Maximum Drawdown is expressed as a percentage of the highest balance achieved thus far. http://www.confidentstrategies.com/maximum-drawdown.htm
The MAR ratio represents the CAGR / Maximum Drawdown.
The Ulcer Index http://www.tangotools.com/ui/ui.htm
The Drawdown to Risk Ratio is the amount of drawdown experienced as a result of the risk taken.
Example Position Size and Risk Calculation
Formula:
Position Size in USD = Loss in Quote Currency / Known Loss in Pips
Known Loss in Pips = The difference between the entry value and the stop loss value.
Loss in Quote Currency = Loss in USD converted to quote currency.
Loss in USD = (B * R) / C
where
B = current account balance
R = risk
C = number of currency pairs traded
Example:
Calculate Loss in USD
If B = USD10000, R = 2% and C = 6 then
2% of 10000 = USD200
USD200 / 6 = USD33.30
If the stop is 86 pips from the entry price then that 86 pips must equate to a loss of USD33.30
Calculate loss in quote currency. If the currency pair was USDCHF and the rate was 1.2036 then multiply USD33.30 by 1.2036 = USDCHF40.07
40.07 / 0.0086 = 4659 Units
Disclaimer
Past performance posted is not necessarily indicative of future results. No representation is made that any account is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particularly trading program. There are numerous other factors related to markets in general or to the implementation of any specific trading program that cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results. I do not make any representation whatsoever that the above mentioned trading system might be or is suitable or that it would be profitable for you. Please realize the risk with any investment and consult investment professionals before proceeding. The trading system herein described have been developed for sophisticated traders who fully understand the nature and the scope of the risks that are associated with trading. Should you decide to using this systems' signals, it is your decision.
One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk. Variables such as the ability to adhere to a particular trading program in spite of trading losses as well as maintaining adequate liquidity are material points which can adversely affect actual real trading results.
