{"id":74004,"date":"2026-09-06T18:59:12","date_gmt":"2026-09-06T10:59:12","guid":{"rendered":"https:\/\/mister.forex\/?page_id=74004"},"modified":"2026-09-06T19:01:47","modified_gmt":"2026-09-06T11:01:47","slug":"return-vs-risk","status":"publish","type":"page","link":"https:\/\/mister.forex\/en\/return-vs-risk\/","title":{"rendered":"20\u201335% Annual Return Too Low? Understand Max Drawdown (MDD) First"},"content":{"rendered":"
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Why Do Some Consider 20%\u201335% Annual Returns Too Low?<\/h1>\t\t\t\t<\/div>\n\t\t\t\t
\nAfter years in quant trading, I'm often asked one question:\n

\n\n\"How much can your strategy make in a year?\"<\/strong>\n

\n\nWhen I answer \"Long-term annualized return around 20%\u201335%,\" the response is sometimes:\n

\n\n\"Isn't that too low?\"<\/strong>\n

\n\nThe issue isn't whether 20%\u201335% is high or low, but rather\u2014\n

\n\nWhat are you comparing it to?<\/strong>\n

\n\nIf your benchmark is \"doubling annually,\" \"20% monthly,\" or \"100% per year,\" then 20%\u201335% indeed looks modest.\n

\n\nHowever, when evaluating a strategy, the real question isn't just \"How much do I earn?\", but:\n

\n\n\"How much risk am I taking for this return?\"<\/strong>\n


\n\n\n

Max Drawdown (MDD): A Honest Metric Than Returns<\/strong><\/h2>\n\nOne strategy yields 100% annualized with a 40% max drawdown;\n

\n\nanother yields 25% annualized,\n

\n\nbut keeps its max drawdown capped at 12%\u201315%. Which is better?\n

\n\nThere is no absolute answer.<\/strong>\n

\n\nWhat you must consider is: Can you stomach this level of risk?<\/strong>\n

\n\nIf you invest $100,000 and your account shrinks to $60,000, can you hold through it?\n

\n\nIf not, then stellar paper returns won't translate into actual gains in your pocket.\n

\n\nThis is why Maximum Drawdown (MDD)<\/strong> is critical.\n

\n\nMDD measures the peak-to-trough decline in net asset value over a specific period.\n

\n\nFor instance, if an account grows from $100K to $120K, then drops to $90K, the MDD is:\n

\n\n(120 - 90) \u00f7 120 = 25%<\/strong>\n

\n\nAnnualized return shows where you ended up, but hides the turbulence along the way.\n

\n\nTwo strategies may both hit 30% annualized: one moves steadily upward, while the other plunges 40% before reaching new highs\n

\n\n\u2014for investors, the lived experience is night and day.\n


\n\n\n

The Deeper the Drawdown, the Harder the Recovery<\/strong><\/h2>\n\nMany intuitively believe \"A 50% loss just needs a 50% gain to recover,\" but the math says otherwise.\n

\n\nSuppose you start with $100,000:\n<\/span><\/div>\n\t\t\t\t
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\n \n \n \n \n \n \n \n \n \n \n
Loss %<\/strong><\/th>\n Remaining
<\/strong><\/th>\n 		Gain Needed<\/strong><\/th>\n Recovery Level<\/strong><\/th>\n <\/tr>\n <\/thead>\n
-10%<\/td>\n $90,000<\/td>\n +11%<\/td>\n Easy<\/td>\n <\/tr>\n
-20%<\/td>\n $80,000<\/td>\n +25%<\/td>\n Moderate<\/td>\n <\/tr>\n
-30%<\/td>\n $70,000<\/td>\n +43%<\/td>\n Challenging<\/td>\n <\/tr>\n
-50%<\/strong><\/td>\n $50,000<\/strong><\/td>\n +100%<\/strong><\/td>\n Hard<\/strong><\/td>\n <\/tr>\n
-70%<\/td>\n $30,000<\/td>\n +233%<\/td>\n Severe<\/td>\n <\/tr>\n
-90%<\/td>\n $10,000<\/td>\n +900%<\/td>\n Total Loss<\/td>\n <\/tr>\n <\/tbody>\n <\/table>\n<\/div>\t\t\t\t<\/div>\n\t\t\t\t
\nDrawdown isn't just \"temporary lower profit\"\u2014it fundamentally alters the mathematical bar to break even.<\/strong>\n

\n\nEvaluating a strategy requires looking beyond final profit and loss;\n

\n\nyou must know how much drawdown was endured to achieve those returns.\n


\n\n\n

High Returns Are Rarely Free<\/strong><\/h2>\n\nSeeking higher returns usually requires accepting higher volatility or risk exposure.\n

\n\nFor a strategy yielding 20%\u201335% annualized,\n

\n\nraising leverage or position size can indeed boost returns,\n

\n\nbut volatility and max drawdown will magnify proportionally.\n

\nWhat is truly worth comparing is not:\n

\n\n\"Which strategy earns more?\"<\/strong>\n

\n\nbut rather:\n

\n\n\"What level of risk was taken to generate these returns?\"<\/strong>\n

\n\nHigher returns don't equal higher efficiency\u2014\n

\n\nsometimes, you're simply taking on extra risk.\n


\n\n\n

Beware Risk-Return Mismatches<\/strong><\/h2>\n\nIf 20%\u201335% seems too low,\n

\n\nthe search easily shifts to \"Is there 50%?\" and then \"How about 100%?\"\n

\n\nSeeking higher returns isn't wrong; the danger lies in rising expectations\n

\n\ndriving investors toward leverage, products, or trading methods they don't understand.\n

\n\nHigh returns aren't inherently scams. What demands high vigilance is:<\/strong>\n

\n\nHigh Return + Low Risk + Minimal Drawdown + Guaranteed Profits<\/strong>\n

\n\nWhen someone promises all of these, ask yourself:\n

\n\n\"What hidden risk is funding this return?\"<\/strong>\n

\n\nSound strategies clearly explain their return drivers, risk exposure, and worst-case scenarios.\n


\n\n\n

Key Metrics for Strategy Evaluation<\/strong><\/h2>\n\nBeyond annualized returns, several metrics provide deeper insights into strategy performance:\n

\n\nThe Sharpe Ratio measures risk-adjusted return,\n

\n\nthe Sortino Ratio isolates downside risk,\n

\n\nand the Calmar Ratio weighs return directly against max drawdown.\n

\n\nThese metrics evaluate strategies from different angles,\n

\n\nyet all address the same underlying question:\n

\n\nWhat risk level was traded for this return?<\/strong>\n

\n\nFor example, the Calmar Ratio divides annualized return by max drawdown;\n

\n\na higher number means more return generated per unit of drawdown risk.\n

\n\nWe will cover terms like volatility, Sharpe, and Sortino in upcoming articles.\n

\n\nFor now,\n

\n\nunderstanding MDD puts you far ahead of investors who only track returns.<\/strong>\n


\n\n\n

The Ultimate Question: Can You Hold?<\/strong><\/h2>\n\nWhen analyzing performance, don't just ask \"Can it earn more?\", ask:\n

\n\n\"If a historical drawdown occurs again, can I stay invested?\"<\/strong>\n

\n\nOne strategy has a 15% historical MDD, while another has 40%.\n

\n\nEven if the latter yields higher long-term returns, it may not suit you.\n

\n\nStrategies don't live in spreadsheets\u2014\n

\n\nyou must hold through turbulence to realize the returns.<\/strong>\n

\n\nIf a 20% drawdown leads to doubt, panic selling, or exiting at the bottom,\n

\n\nhistorical backtests mean very little.\n

\n\nA strategy may survive a drawdown, but the investor might not.<\/strong>\n

\n\nThere is no universal threshold for acceptable MDD;\n

\n\nit depends on capital purpose, investment horizon, risk appetite, and psychological tolerance.\n


\n\n\n

The Real Value of Quant Trading<\/strong><\/h2>\n\nThe goal of quantitative trading isn't maximizing returns at all costs, but:\n

\n\nusing a systematic framework to balance risk and return with verifiable rules.<\/strong>\n

\n\nAutomated execution, position sizing, and risk controls\n

\n\nhelp minimize emotional bias in decision-making.\n

\n\nHowever, quant trading is not risk-free\u2014\n

\n\nit remains subject to shifting market regimes, strategy decay, and liquidity risk.\n

\n\nQuant is not a synonym for low risk or guaranteed returns.\n

\n\nIts core value lies in:\n

\n\ngiving you full clarity on what rules you follow and what risks you take for potential gains.<\/strong>\n


\n\n\n

So, Is 20%\u201335% Really Low?<\/strong><\/h2>\n\nThere is no answer without evaluating risk.\n

\n\nA 30% return strategy with an unbearable drawdown\n

\n\nis often worse for you than a 20% strategy with controlled risk.\n

\n\nConversely, a 20% strategy\u2014\n

\n\nwith transparent risk, tolerable drawdown, and long-term execution\u2014\n

\n\nis by no means a \"low return.\"\n

\n\nThe true benchmark is never just return rate, but the full \"Return \u00d7 Risk\" profile.<\/strong>\n

\n\nWhen assessing a strategy, ask yourself:\n

\n\n
    \n
  1. What is the long-term annualized return?<\/li>\n
  2. What is the maximum drawdown?<\/li>\n
  3. How long do drawdowns typically last?<\/li>\n
  4. Are returns and risks reasonably matched?<\/li>\n
  5. Is historical performance consistent?<\/li>\n
  6. If the max drawdown happens again, can I stay invested?<\/li>\n<\/ol>\n
    \nTrue gains aren't figures on a report,\n

    \n\nbut what you keep after holding through volatility without panic-selling at the bottom.\n

    \n\nInvesting isn't a sprint to get rich quick.<\/strong>\n

    \n\nThe real goal is achieving solid long-term returns within your risk tolerance.\n<\/span><\/div>\n\t\t\t\t
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    Select Your Strategy Allocation<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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