Dear, this week I started to better observe the data provided by the MQL5 website for people looking for good signal providers. Unfortunately the conclusions are not very good, just for the sake of information signal providers are very similar to the provision of services by investment fund managers, so I asked myself:
What are the criteria that people look for when looking for a good investment fund?
Some indicators answer this question, they are:
The Calmar Ratio
The Calmar ratio is a gauge of the performance of investment funds such as hedge funds and commodity trading advisors (CTAs). It is a function of the fund's average compounded annual rate of return versus its maximum drawdown. The higher the Calmar ratio, the better it performed on a risk-adjusted basis during the given time frame, which is mostly commonly set at 36 months.
KEY TAKEAWAYS
The Calmar ratio is a measure of risk-adjusted returns for investment funds, created by fund manager Terry Young in 1991.
The Calmar ratio uses a fund’s maximum drawdown as its sole measure of risk, which makes it unique. This could also be considered one of its weaknesses.
MAR Ratio
A MAR ratio is a measurement of returns adjusted for risk that can be used to compare the performance of commodity trading advisors, hedge funds, and trading strategies. The MAR ratio is calculated by dividing the compound annual growth rate (CAGR) of a fund or strategy since its inception by its most significant drawdown. The higher the ratio, the better the risk-adjusted returns.
The MAR ratio gets its name from the Managed Accounts Report newsletter, introduced in 1978 by Leon Rose, a publisher of various financial newsletters who developed this metric.
KEY TAKEAWAYS
The MAR ratio is a measurement of performance returns, adjusted for risk.
The performance of commodity trading advisors, hedge funds, and trading strategies can all be compared by using a MAR ratio.
To calculate the MAR ratio, divide the compound annual growth rate (CAGR) of a fund or strategy since inception and then divide by its largest drawdown.
Since the MAR ratio looks at performance since inception, one of its drawbacks for comparisons is not taking into consideration the different timeframes funds or strategies have been in existence.
The Calmar ratio is another ratio that measures the same metrics but instead only looks at the past 36 months.
Sortino Ratio
The Sortino ratio is a variation of the Sharpe ratio that differentiates harmful volatility from total overall volatility by using the asset's standard deviation of negative portfolio returns—downside deviation—instead of the total standard deviation of portfolio returns. The Sortino ratio takes an asset or portfolio's return and subtracts the risk-free rate, and then divides that amount by the asset's downside deviation. The ratio was named after Frank A. Sortino.
KEY TAKEAWAYS
The Sortino ratio differs from the Sharpe ratio in that it only considers the standard deviation of the downside risk, rather than that of the entire (upside + downside) risk.
Because the Sortino ratio focuses only on the negative deviation of a portfolio's returns from the mean, it is thought to give a better view of a portfolio's risk-adjusted performance since positive volatility is a benefit.
The Sortino ratio is a useful way for investors, analysts, and portfolio managers to evaluate an investment's return for a given level of bad risk.
Note how much ratios are based on Profit and Drawdown assessments, so something fundamental for a good signal provider is exactly to remain unchanged with regard to Withdrawals and Deposits, exactly to keep the numbers reliable for the subscriber. Just to give you an idea, the first page of MQL5 lists 48 signal providers and only 10 remain with Withdrawals and Deposits unchanged, kept at zero, 38 are not reliable for the application used to evaluate a good investment fund, this is due to some factors one of them is:
Many signal providers are amateurs, and just by luck.
Another point is that MQL5 offers few professional filters, so most subscribers are restricted to Leverage, Profit / Month%, Max Drawdown%, Trading activity%, Profit Trades%, Initial Deposit $, Trading Time in Weeks, Trades per Week , Subscribers, Subscription Fee USD - Note that an investment fund client accustomed to the subject covered in the context would probably not sign any sign from the MQL5 site just because they do not have the appropriate filters available. I am a signal provider, and I have this concern in my reach. What I can do is to maintain a proper conduct for those interested in my work.
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