When comparing trading strategy performance, it can often be challenging to compare very different trading strategies accurately. A scalping strategy that trades hundreds of times a day for short periods is very different to a seasonal strategy that trades once a month.
Likewise, it can be hard to know what effect different parameters within a strategy have on performance as part of the research phase. The Darwinex Performance (Pf) Investible Attribute can help solve both of these problems.
Every trading variable will have a different effect on the performance. Different Asset Classes have different risk profiles, and as such, trades with the same volume will contribute different levels of risk to a portfolio.
This is evident when looking at the returns of bonds vs equities. An equal weighting of bonds and equities will result in the more volatile asset, equities, contributing more volatility to the portfolio.
Trading frequency is another consideration. Assuming equal trade sizes, a strategy that opens multiple daily positions will have a higher risk profile than one that opens new positions only once per month.
Although they may have the same overall return after the same period, how they each get there will be very different. The strategy with the higher frequency will have higher trading costs. On the other hand, the longer-term strategy will be in the market for longer and will be exposed to more market risk.
Understanding the differences between each strategy or variable will enable you to more accurately make trading decisions that give you the best chance of success.
Comparing Trading Strategy Performance
The Darwinex (Pf) Investible Attribute does a great job of comparing and cleverly ranking strategies, and the accompanying video covers this in great detail. It’s thoroughly recommended viewing.
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Content Disclaimer: The contents of this video (and all other videos by the presenter) are for educational purposes only, and are not to be construed as financial and/or investment advice.