Gate.ioBlogCopying Tips in Copy Trading [Sharpe Ratio & Yield Curve]
Copying Tips in Copy Trading [Sharpe Ratio & Yield Curve]
16 August 17:52
Copy trading is a trading product with which users can lead trading or copy others trading . As a copier, it's very important to select a right trader. This article will introduce two ways to judge the leading ability of traders (only for your reference).
1.Two ways to judge the leading ability of traders (only for your reference). 1.1 Sharpe Ratio – An indicator that quickly judges a trader's ability to lead trading and his stability
1.2 Yield Curve - Visually observe the leading performance of the trader and the fluctuation of earnings
2.Sharpe Ratio Guidance 2.1 What is the formula for calculating the Sharpe Ratio?
In Gate.io copy trading, the sharpe ratio can be simply understood as a technical parameter, which is obtained by: trader's average ROI/trader's ROI standard deviation.
2.2 Sharpe ratio value and practical application
The Sharpe Ratio is a measure of the relationship between ROI and risk, which is related to the trader's operation. For example, the average return of trader A is 10 and the risk is 20%. The average ROI of trader B is 10%, and the risk is 30%. As you can see, the relationship between return and risk of trader A is more advantageous.
However, if the average ROI of trader C is 10%, the risk is 20%, but the average ROI of trader D is 20%, and the risk is 50%. How to objectively evaluate who in C and D has a more reasonable relationship between risk and ROI?
This is when the Sharpe ratio is used. According to the Sharpe ratio's calculation formula: the trader's average ROI /trader's ROI standard deviation, (the larger the ROI standard deviation, the higher the risk). Let's continue the discussion between the case of the trader C and trader D and briefly explains how to use the sharpe ratio to choose between the two: convert the relationship between risk and ROI into sharpe ratio. The sharp ratio of the trader C = 10% / 20% = 0.5, and the sharpe ratio of the trader D = 20% / 50% = 0.4. Obviously, trader C is better by using the sharpe ratio to evaluate. It can be seen that, as a copier, you can use the sharpe ratio to make a simple assessment of the trader's leading ability, thereby reducing the investment risk and improving the return on investment.
3.Explanation of Yield Curve 3.1 What is the expression of the yield curve?
The yield curve is expressed as follows: the horizontal axis is the trader's time unit, and the vertical axis is the two-dimensional coordinate curve of the trader's ROI.
3.2 Case Study: What is the value information in the yield curve?
As shown in the figure below, the yield curve is displayed in the form of time and yield curve, so that the copiers can more intuitively observe the overall trend of the traders' leading ROI.
The ROI peak in the figure represents the trader's potential ability, and the peak and low valuation of ROI reflect the trader's leading stability. On the whole, the trader is relatively stable and reliable in leading whose ROI is overall surging . There will also be intermittent, small decline in ROI, but a good control of the stop loss, and principal losses rarely occur, indicating that the trader has enough means to deal with the volatile market situation . You can consider following him.
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