Strategy and performance
Trend following
Entering in the direction of an established move and holding until it ends. Win rates are typically below half, and the result depends on a small number of large winners covering many small losses.
GFN’s figure
Against a GFN 8% 2 Step floor, a trend strategy risking 0.5% per trade can absorb 16 consecutive losses; the same strategy at 2% per trade absorbs four.
In detail
Trend following,explained
The distribution is the challenge on an evaluation. A trend strategy can spend weeks in a shallow drawdown of small losses before the trade that pays for them arrives, and a fixed floor has to absorb that stretch.
It suits a non-trailing drawdown considerably better than a trailing one, because a trailing floor tightens during the profitable run and then sits close behind the inevitable retracement.
Related
Terms thatcome with it
Most rules only make sense next to the ones they interact with. These are the entries this one depends on.
Mean reversion
Trading on the expectation that a price stretched away from its average will return to it. Win rates are typically high and individual losses large, which is the mirror image of trend following.
Risk-reward ratio
The size of a trade's target relative to its stop, expressed as a ratio. A 2:1 trade risks one unit to make two, which sets the win rate the strategy needs in order to be profitable.
Maximum consecutive losses
The longest unbroken run of losing trades in a sample. Multiplied by risk per trade it gives the drawdown a strategy has historically produced, which is the figure a fixed floor has to absorb.
Expectancy
The average result of a trade over a large sample, combining win rate and average win and loss. A positive expectancy is necessary for a strategy to work and not sufficient for it to pass an evaluation.
Win rate
The proportion of trades that finish profitable. On its own it says nothing useful - a 90% win rate with one outsized loss and a 35% win rate with large winners can produce the same result.
Ready when you are
Your capital stays yours.The risk is ours.
One evaluation fee, no time limits and up to 90% of simulated profits. Pick an account size and your credentials arrive by email within minutes.
No subscriptions or hidden fees
Payouts every 14 days
$400,000 max total allocation