The Danger of Chasing Only the Annual Yield (APR)

FX Automated Trading, the EA developerReiwa’s Double-E.

In society

there are those who stoke people’s gambling urges,

with gaudy slogans like

“You can aim for 100% monthly profit!”

and lure customers into LINE open chat rooms.

First of all

Even if you portfolio EA,

it is normal to have months with losses.

Rather,

an EA that recorded 100% monthly profit at its peak

could have months with minus 100% elsewhere, in other months, i.e., collapse,

and additional deposits could lead to another minus 100%.

An EA that focuses too much on ultra-short periods

may become unusable within a few months as the market changes,

so please understand it as such.

Therefore

when you hear the word “monthly profit %!”

it is safer to be cautious.

In short,

you should at least evaluate by “annual yield,”

and be aware that choosing by the high annual yield can also be dangerous.

Why is that? For example, in the path to 100% annual yield

roughly speaking,

• yield dropped by 10% but ended the year at 100%

• yield dropped by 50% but ended the year at 100%

if you only had funds to endure a 10% drop, you could not withstand a 50% drop and would fail.

So,

it is dangerous to judge solely by annual yield.

Correct approach is,

as a backtest item,

the balance of “net profit” and “maximum drawdown”

is what becomes important.

“Big net profit, small maximum drawdown”

then even with small capital you can achieve large net profit,

and consequently the annual yield improves.

and with as little risk as possible.

This is the EA that should be aimed for,

and it is also important in how you compose a portfolio.

If profits are consistently earned every year,

that is, no bias toward annual yield, then even more OK.

From that perspective, choosing EAs or constructing a portfolio is important.

So, let’s go!