Two trading strategies both return 20% annually. One stays in the market constantly; the other only 10% of the time. The second cuts your exposure to market crashes while keeping the same gains.
As an algo trader you have the choice between these two strategies. So let's say you have strategy a. It deliver 20% a year return, but it is exposed 100% of the time in the market. And you have strategy where it also deliver 20% return per year, but it is only exposed 10% of the time in the market. As an algo trader, you have the choice between these two strategies. Let me ask you a quick question. Which one would you choose?
I was looking at this at face value. I would say this.
One good answer. Why? Because your capital is working only 10% of the time in the market, which mean you are less exposed to black swan events and at the same time it deliver a nice 20% a year of return.
