Question about Annual Return

Dear friends,

I’m checking my Magic Trio on The Grid, and I can find a “Annual Return” +218.9%, then I go to the “Magic Trio” page, and I find that the "Annual Return ( compounded ) is 589.8% !!

Can somebody explain if there is a mistake or a different kind of statistics??




One is compunded, the other is not.

And both of them are unlikely to continue long…

Some systems will do really well for a few weeks or months. But this is more a statistical fluke or a short-term favorable market situation. We sometimes have new systems that need exponents to show their annual return the first days or weeks.

But of course, good luck to you with your performance!

So what’s the deal with [LINKSYSTEM_23373921], which has 87.6% on The Grid and 55.5% on the system page?

One is compunded, the other is not. Turning Points is more than 1 year old, and the equation for compound return has an exponent (1/yrs) in it, so more than 1 year acts differently than less than 1 year.

Systems that have been around for a while (1.5-3+ years) may have a decent compounded average displayed on the system page.

Using the Grid, one can sort by age and annual return - which will display the past 12 month return from highest to lowest (and vice versa).

By "drilling down" on these first page results you can see the few that look attractive and actually have a CAGR (compound annual growth rate) from approximately 50 to 80%.

Of course, if you increase age from 1.5 to 2 to 2.5 to 3 years. . .you get a handful that have a good equity curve and stats with an average in this range.

To me this provides the best value, since system vendors have shown a method that continues to grow through all types of markets, controlling drawdown and maintaining a fairly constant level of exposure as equity increases.

Of all the 8000+ systems that have come and gone throughout the last 5 years at only about 50 of these are even profitable - with just the handful that can maintain a decent CAGR.

They must be doing something right. IMHO the rest are just a crapshoot: if you are fortunate to place a decent sum at the right time and get out safely. . .sure 100 to 200% looks good, but chances are this can only attract high-risk capital.

When you take into consideration COMPOUNDING - a 2-4 year stretch diversified amongst a handful of the best longer term systems, this can provide more safely a rather staggering amount of capital growth. It is all in the simple math and experience of knowing the inherent risks of managing your capital.

87% is the Turning Points 12-month return, 55% is the CAGR.





If I may add (the following explanation is obviously unnecessary for Kevin, but perhaps it is useful for others): The compounded form tells you what the annual return is if the system always re-invested its profits and continues to do so. The uncompounded form tells you what the annual return is if the system always used a fixed capital and continues to do so. It depends on the strategy of the system which form is appropriate. For systems that are compounding, use the compounded annual return. For systems that are not compounding, use the uncompounded annual return.

Unfortunately, however, you cannot compare the compounded annual return of a compounding system with the uncompounded annual return of a non-compounding system.

That’s the reason because each trading system developer, should state if he is using the reinvestment strategy, when starting the system, and we should ( IMHO ) find the statement in "The Grid"


somehow, it seems like it might be better if a subscriber could decide whether to follow & trade a particular system with reinvest or not, and have the system appear in whichever mode they chose.

Each sub generally makes such decisions with their own money in mutual funds, whatever. So having the vendor having to choose their system be one or the other seems inflexible.

Current AutoTrade technology pretty much supports exactly what you ask for, Index. If you don’t want to follow the system’s money management technique (i.e. if you choose not to reinvest winnings or subtract losses), just configure your autotrading to use a fixed number of contracts or shares. (For example, set min contracts=3 and max contracts=3.) Then you’ll follow the buy/sell signals of the system without regard to the system’s quantity instructions.

Of course this only is useful for those strategies that do not try to play martingale games by legging into trades bit by bit when trades move against them.