What is a realistic yearly return for a trader?

[Arya Stark]

The question is about the higher end of realistically sustainable risk-adjusted return over at least 5 years.
No one cares about return alone.
(+100% / DD70%) = (+28% / DD20%): that's the majority of tracked accounts on Forex Factory, as an example.
Pretty sad.

Let's say:

• Maximum drawdown: 20%
• After costs, before taxes.
• CAGR: ?
• Monthly return: ?

My answer:

• CAGR: +60%
• Monthly return: +4%
• If I manage to do that for 5 years, I'll say, "Wow, I am an exceptional trader."

P.S. As long as a trader knows how to stay a safe distance away from forced liquidation / complete loss, I don’t judge their drawdowns. For example, equivalents to my answer: +120% / DD40% or +150% / 50%. Risk should be determined by personal risk tolerance and the nature of the account.

 

[reyesisme]

I think 60% CAGR with drawdown kept around 20% for 5 years would already put someone in a very small group. The difficult part isn’t having one great year, it’s keeping that kind of performance when market conditions change. I’d probably value the consistency more than the headline return.

 

[benwhitecole]

The 5-year part is what makes this interesting. A big return for one or two years doesn't tell you much if the strategy eventually blows up. I'd probably put more weight on how the trader handles a bad regime and recovers from drawdowns than on whether the CAGR is 30%, 60% or 100%.

 

[fargana]

The five-year condition is what makes 60% CAGR with 20% DD a seriously high bar. A trader can have one monster year from the right regime or extra risk, but repeating it through trends, chop and drawdown periods is another thing entirely. I’d care a lot more about return-to-drawdown and stability than the headline percentage

 

[gainzalgo]

Interesting comment on changes in the market regime. A lot of people have come out with “great” 1-2 year track records and then when volatility or a trend turns, it collapses that's when the real test begins, that's not when the numbers on the CAGR graph appear. If they landed on a ratio of 60/20 it would be rare for them to sustain that for 5 years.

 

[sakaida1125]

setting a target of 60% cagr with a 200 bps... wait, 20% drawdown over 5 years isn't just standard retail talk. keeping that tempo steady for half a decade puts you in an ultra rare tier.