Scientific Trading

• High Sharpe Ratio: This indicates that the trader's returns are high relative to the risk taken. For example, a Sharpe ratio above 1.0 is generally considered good, above 2.0 is very good, and above 3.0 is excellent.

• High Recovery Factor: A high recovery factor shows the trader's ability to recover from losses quickly. For instance, a recovery factor greater than 1.0 indicates that the cumulative net profit is higher than the maximum drawdown, demonstrating resilience.

• Low Volatility Ratio: Although a low volatility ratio suggests stable returns, it's important that this stability accompanies reasonable returns. A balanced volatility ratio ensures that the returns are not only stable but also significant.

• Low Max Drawdown: A trader with a low maximum drawdown experiences smaller losses during downturns. For example, a max drawdown of less than 20% is often considered acceptable, while less than 10% is excellent, indicating strong risk management.

• Consistent Days Traded: This metric should reflect consistent trading activity. A good trader maintains a steady trading frequency that aligns with their strategy, avoiding long periods of inactivity which could imply missed opportunities.

Example of a Good Trader

• Sharpe Ratio: 2.5

  • This indicates that Trader A achieves high returns relative to the risk taken.

• Recovery Factor: 1.5

  • This shows that Trader A can recover losses effectively and generate a profit that is 1.5 times their maximum drawdown.

• Volatility Ratio: 0.3

  • This implies stable returns with an average return slightly higher than the risk (standard deviation).

• Max Drawdown: 8%

  • This indicates excellent risk management, with the largest peak-to-trough decline being only 8%.

• Days Traded: 480 Days

  • This suggests that Trader A is consistently active in the market, trading on most days and taking advantage of opportunities.

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