I have a live account which is going up, but my Sharpe Ratio in FOREX is really low.
I have studied a lot of investment options and liked FOREX most of all. It is a many trillion dollars market, per day, which makes it ideal for those who want a fast way in and out but still the Sharpe Ratio in FOREX is leaving me speechless.
Unlike stocks it has a very low entrance point, it is really easy to find a good broker that has almost everything, and fees are already low and going lower due to competition.
But how does a FOREX investment benchmark against other types of investment?
First we need to set some common grounds for comparison, so we are sure that everybody will understand the same thing. Again I read a lot on investments and Sharpe Ratio was one of the most used parameters for showing how an investment was doing.
It appeared that a Sharpe Ratio of more than 2 (two) would indicate an investment definitely going up, much more than a risk free account and certainly less risky than anything out there.
I have already tested many strategies in demo and live accounts, with some of them going up as much as 70% MoM (month over month), but what they had in common was their low Sharpe Ratio. The best I could manage was a mere 0.25, which by the investment Gurus would have been considered nonexistent.
So let’s consider what is going on with Sharpe Ratio in FOREX. Am I doing things in the right way , or am I doing everything wrong because my Sharpe Ratio is saying so.
My Live account is gaining more than 5% MoM, which I believe to be much better than a Risk Free account. You know, interest rates are not so god nowadays, with most of them ranging in negative territory after taxes and fees are calculated.
I have a leverage of 500 , and I’m making good use of it. In the end that’s why it is there for.
I am taking calculated risks, based on my set strategy and I know with a certainty of almost 99,95% where things will go.
But still my Sharpe Ratio in FOREX is low
So again I’m curious why this happens. Again I went back to see what Sharpe Ratio was meant for.
It was invented in a time when the only way to gain from an investment was when its value went up. Almost nobody had any leverage. You had to be right all the time, otherwise your investments were locked somewhere and nothing could be done, other than taking a loss. Everybody thought of buy and hold as the only way to go.
But this is not FOREX. FOREX gives you the opportunity to profit with ups and downs, from big or small moves, and sometimes even sideways if you know what correlation is. If you’re smart you will end up winning both in range and trend.
But I am not a mathematician, statistician or Nobel price winner to invent a meaningful KPI, but my guts is telling me that Sharpe Ratio in FOREX is so WRONG.
I can show you accounts that are live for more than 5 (five) years with a Sharpe Ratio in FOREX of no more than 0.08 , and they are doing a mere 60% YoY.
Somebody out there please find something that does truly express the way FOREX investments work. How putting to good use all the features in there is not a bad thing.
Hope you enjoyed this post.
Looking forward to seeing you back soon.Tags: Algorythmic Trading, CFD, cTrader, Dollar, FOREX, FOREX Account, HFT, High Frequency Trading, Live FOREX, Pound, Sharpe Ratio, Trading