Recovery Factor : Is it important? - page 3

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Recovery factor can be different meaning for each system statisitic.

as far as I know , recovery factor is to determine if trading system profitable-safe or not.

for example: last equity = $1000 ...... and then came loss 20%, equity change into $800 ... next, equity increase again into $1100.


so, recovery factor is condition where loss change into profit.... but it also depends on how much risk in every trade.
and it's very important especially to choose Signal Provider.

 
my drawdown is 34.82%, recovery factor 67.25 and profit factor 30.16, anyone can tell me what's that mean? i never use stoploss anyway..
 
I'm not really sure on how it is calculated but I'm really sure it will help you choose one strategy over the other, because the higher the recovery factor is the less likely you are going to lose more money than the one you are risking.
 
Alain Verleyen:
That means you are using a martingale and no stoploss and you will crash your account soon
😂😂😂😂😂 damn market...can't allow you to enjoy your recovery factor in peace
 

I was advised by one of the EA developers to aim for a recovery factor of 7 or greater, I assume that he has done a lot of work on this type of thing as his products are quite reliable.

I wonder what others use as a benchmark.

 
Widy Prasetyo:

Recovery factor can be different meaning for each system statisitic.

as far as I know , recovery factor is to determine if trading system profitable-safe or not.

for example: last equity = $1000 ...... and then came loss 20%, equity change into $800 ... next, equity increase again into $1100.


so, recovery factor is condition where loss change into profit.... but it also depends on how much risk in every trade.
and it's very important especially to choose Signal Provider.

I think it is a common thing, sometimes we lose first and then profit.
 In forex nothing is always a profit, for that we are required to use money management wisely.
 
What is the best Recovery Factor number?
 
ALIREZA MALEKI:
What is the best Recovery Factor number?
I've tested and contemplated on it for a long time. In my oppinion it depends on 2 factors: 
1- Your country bank yearly interest (Iran~10%)
2- Time length of back testing

So consider a time length of 5 years. Then Your ground zero RF should be:
  [Bank Interest Rate ^ Years]

In this example it will be 1.1^5=1.61

So any RF equal or below this value is not worth risking your asset. Because the banks will give you this much without any risk.
P.s: the largest RF I have ever achieved and had a celebration for was 11.3
 

Recovery Factor is the ratio of the net profit to the max drawdown within a given time period. Without specifying the time period, it's meaningless.

Extreme examples:

You did two trades this week and had zero drawdown. Your RF for the week is infinity (divide by 0).

You have a trading strategy that has a fixed stop loss, and a very high win rate. After a month, your RF is, say, 1.0 (you made as much profit as your highest DD). After a year, you still never hit a higher DD. But your RF is now 12 (you've made 12x as much money). In 10 years, if the strategy holds, your RF is now 120.

So, as you can see, talking about Recovery Factor without specifying the timeframe is meaningless.

Personally, I standardize on 1 year for all my comparisons. Every strategy, I run through a couple of different 1-year time frames and see what the RF is. That's actually my primary selection criteria for evaluating strategies.

So what's the best RF number? The highest one!

But basically, I think anything above 5-6 is workable, but really, you probably want over 10 to be considered a "really good" strategy. Again, make sure that you know the time frame when comparing those numbers.

 
Scott Allen #:

Recovery Factor is the ratio of the net profit to the max drawdown within a given time period. Without specifying the time period, it's meaningless.

Extreme examples:

You did two trades this week and had zero drawdown. Your RF for the week is infinity (divide by 0).

You have a trading strateg y that has a fixed stop loss, and a very high win rate. After a month, your RF is, say, 1.0 (you made as much profit as your highest DD). After a year, you still never hit a higher DD. But your RF is now 12 (you've made 12x as much money). In 10 years, if the strategy holds, your RF is now 120.

So, as you can see, talking about Recovery Factor without specifying the timeframe is meaningless.

Personally, I standardize on 1 year for all my comparisons. Every strategy, I run through a couple of different 1-year time frames and see what the RF is. That's actually my primary selection criteria for evaluating strategies.

So what's the best RF number? The highest one!

But basically, I think anything above 5-6 is workable, but really, you probably want over 10 to be considered a "really good" strategy. Again, make sure that you know the time frame when comparing those numbers.

Thanks @Scott Allen, I read through the entire thread, luckily I found you having the exact view on RF as myself.

And yes, length of test matters and for myself I will try to use as longer period as possible, plus year by year. 

The best should be, stable year by year RF, followed by a long term RF as closely as multiple of annual ones (say @2 per year should result in ~20 over 10year span) 

I am curious, your 5-6 RF is on annual RF? That s considered extremely good to me,which I have never achieve for long term confidence BT

I also saw some discussion saying martingale strategy would always result in high RF, that is not true from my understanding, aa martingale system could suffer from large floating DD, which is also considered in RF calculation(the mdd). 

My experience and method on gauging a martingale system performaxnce is

(1) Set Stop loss as always (othewise the result can never be trusted) 

      My way is try to set SL referring to rate of return, example, set SL as profit of 3 months, meaning for every SL, you will need 3month to catch up from thr loss) 

(2) Back test super long period, if SL frequency is so high that, the profit can never catch up with, then the strategy is fail

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