What monthly return is actually realistic — and how much drawdown would make y

Genuine question, because I keep going back and forth on it myself.

I run a fully automated strategy on MT5, and the hardest part isn’t the entries — it’s deciding how much drawdown is “acceptable” for a given return. Push for higher monthly gains and the drawdown climbs; tame the risk and the returns get modest. There’s no free lunch.

I don’t think there’s one right answer, so I’d love to hear where others land:

 1. What monthly return do you consider realistic and sustainable — not the dream number, the honest one?

 2. What’s the most drawdown you’d actually tolerate before pulling your money from a system (yours or someone else’s)?

G'day.

These are important questions, because returns are often very overstated.   

Question 1:

Monthly return and expected drawdown are to a degree, intrinsically linked. It's difficult to pin a number on one without discussing the other. And this is also effected by other factors including the target market and risk of ruin - i.e. are the returns for external funds or personal trading? What is the maximum that your trading can tolerate risk wise before becoming unrecoverable?

To tackle the risk of ruin question - generally if an account is breaching 30% drawdowns, it has become essentially unrecoverable and unattractive. Institutions like to see 8-12% maximum drawdowns, in which case a good return would be 15-25% per year. If anyone can do this sustainably across multiple years then they are ready to scale up institutionally. I like to trade my own capital with a bit more risk, because I understand my product and its behavior, so it is tuned to hit roughly 35-40% returns per year for an expected 15% maximum drawdown.  Overall, a realistic monthly return of 2% is fantastic (24% annually), if maintaining drawdown under say 12%. 

Question 2. Tricky to answer this one other than saying if both expected drawdowns are being breached, and other metrics such as sortino/sharp ratios indicate the strategy isn't working, then it might be time to go back to running micro-lots and re-evaluate the strategy.  Same applies to if I deployed capital to other traders - it's not really about the drawdown, rather if historic metrics are consistently being breached. If I've deployed to someone that has erroneous risk management that pulls an account into say 30% drawdown, then that is on me. 

Hope that helps

Apex Trading Signals. 

Thanks for such a detailed answer  this is exactly the kind of reply I was hoping for.

You’ve put your finger on the thing I keep wrestling with: that 30% line. I’ll be honest — my own automated system has pushed into that ~30% range chasing higher monthly numbers, and your point about it becoming “unrecoverable and unattractive” is a fair hit. It’s made me rethink whether the extra return is even worth it once you factor in risk of ruin and how it looks to anyone outside.

The 2% monthly / sub-12% drawdown anchor is really useful. And I agree the real signal isn’t the raw drawdown number  it’s when Sharpe/Sortino start consistently drifting from their historical range.

Question for you: when you tuned your own system toward ~15% max DD for 35–40% a year, did you get there mainly through position sizing, or did you actually change the strategy logic / trade selection? Trying to work out the cleaner lever to pull.

No worries, there are a few levers you can pull to get there, the main ones being a combination of two factors.

There is an amazing video on YT - Ray Dalio's holy grail principal. Watch it if you get the time. It details how drawdowns are reduced when introducing multiple, uncorrelated strategies into a portfolio, while maintaining uncapped upside.  It is the closest thing to "the perfect trading strategy" you can get - it is a powerful mathematical tool, not only for trading but other diversified investment methodologies.

Assuming you have a few strategies (with probably edges) running at once within a broader portfolio to reduce drawdown, then you look at assigning risk to each based on their sortino & sharp ratios. Hypothetically, if you have 5 diversified strategies/methods running at once, a  risk of 0.35% per trade for each method is going to land you around the 12% live max DD mark, unless your methodologies are false positives (i.e., not an edge). You can refine this by creating a simulated portfolio of the 5 strategies and running a large series of Monte Carlo tests across large data sets. Claude/chat got would do this with ease.

Strategy logic doesn't come into effect too much, maybe more at the portfolio level where you can tweak SL/trail/TP/run rate levels by design to increase portfolio stability, this is a third and more nuanced lever to pull.

A lot of this points towards automation which I'd highly recommend, it is easy to do. However the same ideas can also apply to discretionary, it just becomes difficult to maintain consistency.

Appreciate you laying all this out  solid points, and good to see it framed so clearly.

Portfolio construction over single-strategy logic is the right call, and the risk-weighting by Sharpe/Sortino across uncorrelated edges lines up with where I’m heading. The Monte Carlo step on the combined book is exactly the kind of validation I want to run before sizing anything up.

I’ll dig into it properly and see what the numbers say. Thanks for the exchange  genuinely useful.