So you tired of trading manually. Either you are a successful trader you still want to have a robot to trade for you because of robots have some great characteristics:
- Strictly follow rules.
- Having no psychological issues like human.
- Work constantly reliably, not being tired (and cause bad judgements) like human.
But what is a good robot? Forex trading is to make money grow. If robot can make money grow, then it is good. Now we have to consider how much the grow is good. How many percent per year or per month or per week or per day? And don’t forget to include the drawdown!
At the minimum the return has to be higher than interest if we put the money elsewhere to grow without doing anything: put in a bank.
But that is too little, most people think, like 5-7% per year. Most people want something like 3-10% per month, some want 20% per month. Most have low capital, for example only (USD) $5,000 or less to start with. A 5% of that per month is only $250 per month which they see not really worth it. That why they expect more: 10% or even more than 20% per month! 10% a month is more than 120% per year which is more than 17 times of the interest that the bank lend their money with!
To us, the reasonably expectation is 25% to 50% per year.
Will this be equal to about (divide to 12) 2.1% to 4.2% per month, or (divide to 52) 0.48% to 0.96% per week, or even if you want divide further to daily goal: 0.1% to 0.2% per day? Not quite, because the shorter time period the target is the harder to achieve. Some months (or weeks or days) will not do as much as other periods.
One year target may be too long. We will stick to 3% to 6% per month.
Now we have to talk about drawdown. Most people or investors don’t want their account have a drawdown (DD) higher than 25%. Some are okay with 30% DDmax, some only feel comfortable with 20% or even 15% or lower DDmax.
We allow 30% DDmax in our robots. But this number can be adjusted. The lower DDmax allowable the lower the return and it is not linear.
Consider this test results of one of our EA with different DDmax, on 4 months…
Which option do you like most? To me it is option 0.3 lot size which bring 35.6% return (in 4 months) with the maximum drawdown of 19.3%. Even option 0.4 is great to me.
Some people are more conservative, they may pick option 0.1 lot size. That brings 13.2% return and 6.9% DDmax. Some pick option 0.2 or 0.4 lot size.
So which is best? We tend to evaluate EAs by the ratio R/DDmax within 4-month period. In this example the ratio is about 1.6 to 2. Depending on the EA, this ratio is not fixed but it better be. That means, it should be independent to the lot size.
With some EAs, when we increase the lot size, the return increase a lot more than the DDmax.
We always try to create EAs that have R/DDmax larger than 2 and based on 3 to 4-month period.
What is your expectation or goal on robots (EAs)?
This is very informative. Thank you.