The most successful traders, work with VAR <5% (there are many examples, among which I follow, ZVQ, ERQ, THA, NTI, STV …) or a tad more, 6 or 7%.
There are very few good examples of strategies with risk of 10% or more.
But, if as is my case, we work with risk of the environment of 2.5% in the strategy (one of my darwins is HGO), the investor multiplies the movements of the same by 4 (in a not perfect but acceptable calculation). In addition, going from working with 2.5% to 5% to try to get closer to 10%, apart from that it is not at all clear that it is very desirable, it means changing lots and capital accordingly, and the SCORE manager of DWX takes a while more or less long in adapting to the new situation, so the SCORE, in that month, suffers …
But this I think is NOT the important thing: the fact is that for a VAR of 10%, we have an average annual target yield of 25% as very desirable, with a maximum loss of 20-25%, also annual. The famous ratio Return / maxDD in annual format, where anything greater than 1 is a great merit (because, after 5 years, if every year has occurred that case, the composite performance will be 1.25 ^ 5 = 3, ie , the 300% yield, while the maxDD will have stayed at that 20-25%.
Realistic goals and in fact, very very good.
But a 20-25% maximum annual DD is enough … the percentage deceives, because the investor sees what are the euros, dollars or pounds lost … perhaps it is little for a portfolio of € 1000, but much for a € 20,000 and very much for a € 100,000 or more … for me, go through -10,000 or -20,000 € losses seems to me excessive volatility (despite being very profitable in the long term!) And that if You get the returns, because if you had 50,000 pounds and after 5 years have multiplied by 3, and you have 150,000, that 20% (for the same VAR …) will be 30,000 pounds. If, after winning 100,000 pounds, a DD of € 30,000 is better, but the days go by and the number is undermining confidence …
Would not investors sleep much better, especially those who have more money and therefore more confidence, with a VAR of 5%?
And it is not a 12% of annual objective profitability an excellent result, that practically does not give you any other asset ??
What do the forum experts say?