raqwl.deji
06-12-2005, 05:28 PM
Youve have heard me speak about my preferred trading platform statistic, what I used to predict yearly yield . maximum drawdown.
I got around to studying Trading Risk by Grant. Whaddya know this is his statistic. He calls it ROMAD. I like that title betterhttps://www.cliqforex.com/attachments/forex1508539997.png
it got me considering ROMAD, and seeking to picture the reason it's by far the main statistic. Its easy, yet took me a minute to grasp.
Why ROMAD it's by far the main stat is since it mathematically defines risk . reward (really, it defines benefit . risk, but its the exact same difference). What's the danger of a system, if you consider it? Its the maximum drawdown! And as the majority of us are investing for bottom line results, reward IS yield. Yearly return ROMAD.
Heres an example...
a reasonable (and I use this term broadlyhttps://www.cliqforex.com/attachments/forex1508539997.png) investor is going to have a maximum amount they're prepared to risk. Lets say you have a account, and also the maximum that you need to danger on the system is 3k. To put it differently, you're eager to bear a drawdown until you stop using the machine.
Keeping this in mind, pretend you've got two systems to select from.
SystemA / / ROMAD = 1.8
systemB / / ROMAD = 1.0
because we're just ready to hazard 30k, whichever system we pick, systemA will provide us 80% higher annual returns than systemB. Because for each 1 dollar risked (in the kind of maxDD) you receive back $1.80 back (in the kind of annual yield) with systemA. And for systemB you get $1 for each $ 1 back risked. Thats a means of saying systemA has a risk . benefit!
ROMAD = avg. Annual yield / maximum drawdwon
ROMAD = REWARD VS. RISK
https://www.cliqforex.com/attachments/forex1508539998.png
I got around to studying Trading Risk by Grant. Whaddya know this is his statistic. He calls it ROMAD. I like that title betterhttps://www.cliqforex.com/attachments/forex1508539997.png
it got me considering ROMAD, and seeking to picture the reason it's by far the main statistic. Its easy, yet took me a minute to grasp.
Why ROMAD it's by far the main stat is since it mathematically defines risk . reward (really, it defines benefit . risk, but its the exact same difference). What's the danger of a system, if you consider it? Its the maximum drawdown! And as the majority of us are investing for bottom line results, reward IS yield. Yearly return ROMAD.
Heres an example...
a reasonable (and I use this term broadlyhttps://www.cliqforex.com/attachments/forex1508539997.png) investor is going to have a maximum amount they're prepared to risk. Lets say you have a account, and also the maximum that you need to danger on the system is 3k. To put it differently, you're eager to bear a drawdown until you stop using the machine.
Keeping this in mind, pretend you've got two systems to select from.
SystemA / / ROMAD = 1.8
systemB / / ROMAD = 1.0
because we're just ready to hazard 30k, whichever system we pick, systemA will provide us 80% higher annual returns than systemB. Because for each 1 dollar risked (in the kind of maxDD) you receive back $1.80 back (in the kind of annual yield) with systemA. And for systemB you get $1 for each $ 1 back risked. Thats a means of saying systemA has a risk . benefit!
ROMAD = avg. Annual yield / maximum drawdwon
ROMAD = REWARD VS. RISK
https://www.cliqforex.com/attachments/forex1508539998.png