"annualized volatility" in the Zorro performance report

I have started to use a strategy performance indicator „annualized volatility“, described publicly by RobotWealth. I use it live for my strategies, find it very practical and this is to suggest to include it in the Zorro strategy performance report.

They advise to calculate this „annualized volatility“ as a standard deviation of daily relative returns and multiply it by square root of 252. Then scale the trades to keep this „annualized volatility“ in 12-15% range. This whole process is to psychologically resist the drawdown in real trading. The data record should be 6 months or more.

If there is a statistically more appropriate way to set up such scaling for live trading, which is already available in the Zorro performance report, will you please advise ?

Is your question about the volatility of your asset's price returns or your trade returns?

Also, what are you trying to do here?

Hello Andrew, I meant trade returns. However, indeed the same parameter for equity balance would be also useful.

What am I trying to do: When you have your back tests done, your strategy is solid and you proceeed to live trading. I am talking about the tool, or rather calculated parameter „annualized volatility“, which suggests you a new "scaling" of your strategy before you switch to live trading in order to resist the psychological stress during drawdown period. Simplified simple example, Back test: trading capital 1000, risc per trade 0,5%, no reinvesting, max. drawdown 3000 USD, i.e. 30% of your capital - one should scale the risc per trade to 0,25 % in order to keep the "volatility" under 15% of your real capital. But this all needs to be somewhat "annualized", so there is indeed a public formula: standard deviation of daily returns x square rood (252) ..

Well, you can derive that from your performance report.

(Annualized) Sharpe Ratio = (Annual return - risk free rate)/ Annualized Stdev (a.k.a. Annualized volatility).

Zorro uses a risk-free rate of zero. Therefore, StDev = AR / Sharpe.

For example, if AR is 40% and Sharpe is 1.5, then StDev = 40% / 1.5 = 26.7%.

AndrewAMD, yes, that is what I need. Reading the manual, I have also modified the scripts now by using the "Capital" variable, and used the Annual growth rate, instead of AR. This way the volatility is related to my initially invested capital - which is my "psycho" reference. Thank you for your advice !!

Actually, by reading the manual, there is a possibility to implement a "Cold Blood index" into the scripts. If the CBI is in the range, one does not have to worry about the drawdown during live trading. I assume, this should be my future approach to handle the trading psychology ?

I am sorry for posting this in the wrong forum section, I intended to suggest a new performance indicator. Zorro is a great tool, amazing what it can already do ...

Cold Blood Index

Don't know if it can be put into the trading script directly...

https://financial-hacker.com/the-cold-blood-index/

You have to bear in mind that Zorro calculates Sharpe from 'bar returns'.

The annualized standard deviation is displayed in the performance report. However Sharpe and R2 are more meaningful.