When we choose a moderate risk strategy provider, we look for a portfolio which is able to give us returns that are adequate while keeping volatility and risk at a level around 20% or less on equity.
In this article, I’ve chosen three criteria to look out for in a moderate risk strategy provider:
1. Growth Per Month
2. Average Returns Per Month
3. Max drawdown on Equity
Growth Per Month
From the CopyPip platform, you may not be able to find the specific values for growth per month, but we can actually calculate it given that we can find growth (%) and the age of the strategy provider. We try to look for a strategy provider that gives at least 10% growth per month.
For example: If the strategy provider’s age is one year and growth is 150%, this means that the growth per month is 150%/12 months = 12.5% per month.
Average Returns Per Month
The higher the average returns per month, the more profitable a strategy provider is. This could be a good gauge on the amount of returns you are getting based on your equity available to follow the provider. We aim to get an average returns of 10% per month.
Max drawdown on Equity
Drawdown is peak-to-trough decline during a specific period for a fund. A drawdown is usually quoted as the percentage between the peak and the subsequent trough.
For example, if a trading account has $10,000 in it, and the funds drop to $9,000 before moving back above $10,000, then the trading account witnesses a 10% drawdown. $1,000/$10,000 = 10%
For a moderate risk strategy provider, we aim to look for values below 30% as a rule of thumb, giving the strategy provider enough room to take slightly higher-risk trades to get the returns we aim for.
Note: Drawdown is not equal to loss. A strategy provider can have a loss of 20% but drawdown could be 27%. This is due to most traders viewing losses in terms of their purchase price ($100 in this case), and not the peak price the investment reached after entry.
Fullerton Markets Research Team
Your Committed Trading Partner