For a well-performing system, the efficiency factor should typically be in what range?

The efficiency factor is a critical metric used in evaluating the performance of a trading system. It is calculated as the ratio of the net profit produced by the system to the total drawdown experienced over a given time period. In the context of a well-performing trading system, an efficiency factor in the range of 38% to 69% indicates that the system is generating substantial profits relative to the risks it is taking on, particularly in terms of drawdown.

This range reflects a balance between reward and risk, which is essential for sustainable trading performance. Systems operating in this efficiency band are often considered robust because they effectively manage risk while still providing a decent level of profitability. A factor in this range suggests that the trader could expect favorable returns without exposing themselves excessively to risk, which aligns with the principles of risk management in trading.

In contrast, lower efficiency factors could indicate that the system is underperforming when evaluating profit against its drawdown, while higher figures, such as those greater than 70%, may suggest an unrealistic expectation of performance that may not be sustainable over time. Thus, the choice that reflects a well-performing system is the one that captures the essence of a reliable and effective trading approach.