I would like to provide general system evaluation criteria to potential investors and managers looking for the next best long term system to rent or buy in order to generate a stable growth and income.
Always Look for 3 main Factors. Draw down, Growth in relation with DD and time and Generated pips in total and on average.
Also holding time should be more than 5 minutes and less than a month on average. I disagree with some here imposing restrictions with open trades holding time as you can hold a transaction for longer periods if your MM take into account the propability and you risk a minimum of your account %, even if you hit a 700 pips Stop. Certainly this has to be the exception and not the normal.
If you see systems with less than 10 pips average win and more than 1:3 Win/Loss ratio, be ready to RUN...
If you see systems with high growth, low DD but with Low pip number for this growth , be ready to RUN...(away..)
eg. Listed here previously...What would have happened to your capital if you had joined it at the top even with a 1:10 lot sizing than the demonstration shown, the bare minimum for Alpari UK, 0.01 lot sizing. A bad 40% DD..With a 1:5 a nice margin call...
An example to avoid...https://www.myfxbook.com/members/baraban/alpari-uk-classic/90491
Unfortunately this was a system considered good from some other managers - traders here..Actually was 1 out of 2...
I would not trade the other also...for simmilar reasons , although a bit safer..https://www.myfxbook.com/members/trade4hapi/spytrader/39814
In comparisson to have you understand what I am talking about...
My SUPER-XM system made more pips than this in its first month but growth was only 15% not 460%...
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The more pips generated by a system to make you growth, the better the money management and safe profitability..
If you see systems with low number of trades sample WAIT and WATCH, until get more confidence and check back-tests for at least 5 years to see relative consistency with the forward live testing.
If you see negative number of pips and many months history RUN as this is a martingale like strategy and can blow you even after years of success.
If you see promises for consistent monthly performance of 100% or more RUN...
If you see a great growth performance but a DD of say 30% (like eg in one of my systems) and you are conservative investor you can
have the system trade in 50% or less, thus minimizing the DD comfortable zone to also 50%...
In an opposite fashion, if you are not happy with a 40% yearly performance and you want 100% or more, you can find a system with
low DD and multiply this by 2-4 times by increasing lot sizing and thus performance.
Always take account open DD and consider that it maybe more than what the orange line currently pinpoint to you...
Analyse and try to calculate the worst case if you had just join at the top, what would have happen at the lowest point..
Always start small, make some profit and then increase the lot multiplier - MM risk plan accordingly..
At least if you enter into a system dive you minimize DD and if you dive deep after a while at least your temporary capital damage will be smaller due to some profit already made..
Don't listen to some people saying that a 20% DD is not good for a 10% monthly growth...
It is true only if you gamble or have a 3 months time frame to pay back the Mafia...
Even if you dive in then you need an average of 2 months to recover losses which is fine if you have yearly profit targets..
Always be careful when you see 1:100 or more leverage. Learn the maximum estimated open margin required and check if your broker aggregates the hedged open positions and need margin only for market exposure.
Institutional clients with requirements of 1:25 or less leverage and less than 10% DD, should calculate accordingly and decrease the lot sizing and thus the growth performance. eg. my systems need at least 1:100 leverage or more to be safe...in worst case.
If someone needs less, he must divide EA copier multiplier accordingly.
As an example a system with an average growth of 200% per year will become a system of only a 20% a year for institutional clients using only 1:10 leverage, which is still good enough for 8 digit and more accounts.. Don't ever forget that serious long term investors and hedge funds crave for a solid 30% growth per year.
This is the rate most successful multi - investor Warren Buffet' s company average growth..
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