What Are Considered Acceptable Returns for an Automated Strategy?
Acceptable returns for an automated strategy should aim to match or exceed market returns (8-10% annually). Achieving over 20% consistently is difficult and often involves significant risk or leverage.
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Determining acceptable returns for an automated trading strategy is not straightforward and depends on several factors, including your risk appetite, leverage, and the strategy’s time horizon.
Benchmarks and Expectations
Many traders use the market’s average returns as a benchmark. For example, the S&P 500 has historically provided annual returns of around 8-10%. If your strategy can meet or exceed this benchmark after accounting for commissions, slippage, and taxes, it can be considered successful. However, consistently achieving returns above 20% annually is extremely difficult.
Risks and Leverage
Higher returns are often associated with additional risk or leverage. Intraday strategies, for example, may provide high win rates and profit factors, but they generally target smaller slices of the market’s overall returns and can underperform over time, especially during periods of market regime changes or volatility spikes.
Learning and Strategy Refinement
For some traders, the journey isn’t just about returns; it’s about learning and understanding market dynamics. Each new strategy, even if it doesn’t generate immediate profits, provides valuable lessons about asset behavior, correlations, and market conditions. Over time, this knowledge can lead to better opportunities and more refined strategies.
Conclusion
Acceptable returns vary based on your goals and risk tolerance, but aiming to at least match market returns (8-10%) after accounting for costs is a reasonable goal. Achieving returns above 20% annually is rare and requires significant risk or leverage.
