Which are top performing metrics which come to your mind when talked about a trader, trader advisor, hedge fund or a black-box trading system?
The popular ratios I guess are Sharpe, Calmar, Omega, Sterling, MAR...
We had a similar thread in linkedin group so seeking participation once again
To kick start, I will like to mention No. of Trades as another important metric, though over looked by beginners. Suppose I make 10 lakh in a year. Achieving the same profit through 500 trades is more desirable than 50 trades. For larger no. of trades, everything else remaining same:
-- One large losing or winning trade will have less effect on monthly and quarterly profits
-- Lesser drawdowns
-- More consistency in profits
Please note one does not necessarily has to decrease holding time per trade- A larger no. of trades for a given time interval can simply be achieved by reducing $risk per trade and instead trading across more instruments.
just to impress those ladies in the office in those days , i used to talk about Kurt, Skew etc . and to get even more impress based points , mesokurtic , leptokurtic , platykurtic.
I know that Omega is such term off-late:)..
for the starters it is just outlier adjusted profit factor , if measured over 25 trades is a good stating point .. and use one tailed T-test so that the results are not fluke , and are statistically significant ...
Inadequate data / specification does make problems into specifications. How do such questions add any value to refine the thinking of a trader or a risk manager? Please help average minds, such as yours truly, understand this.
If 70R% accuracy per day is maintained consistently and not over the larger time spans you are aggregating performance data in then the runs for loss making trades cannot be more than 6, 3 losing trades of t-1 and 3 beginning trades of t also are loss making.
However, if you are asking one to make an open ended assumption again that there can be runs of 30% of 10 trades per day X 250 days in a year or 750 losses continuously for an example.
Now with this one set of morbid assumptions also non specification of the size of average losses vis a vis the size of average gains or the estimates of any distributions of p&l per trade its a question that will just cause a thinker too much consumption of grey cells.
Specify your riddle into a problem. Solving a problem is likely to yield to a profitable trade. Seeking riddles is like "God you made me so smart and why my P&L Sheet is still always into the red."
For estimating expected losing streak, we need only the no. of trades and the probability of a winning trade (both mentioned in the riddle).
It is important for a trader to know his expected losing streak. Why? It's a fast estimate of his $drawdown, and guide for the trade management style to be adopted. As an example consider a trader discovers a pattern in price behavior, and ofcourse, the failure rate of the pattern. Okay, to be specific, lets say he observes a bullish pattern which occurs 1000 times in the past year, and in 300 of that instances prices actually go down after that pattern occurs; or in simple english the pattern fails 30% of the time. The trader needs to start with a estimate where and how to buy X units, add and book profit.
The real $drawdown is a totally different function than the losing streak. For calculating that we will need more metrics: avg, winning trade, avg. losing trade. std. deviation of winning and losing trades, outlier adjustment. It DEPENDS on the trade management style.
Real life situations most often are not so simple to be specifically put down in 100 words. But they can be broken down and tackled in a smarter way. For some reason I do not think that the fact that riddles have been around since civilizations evolved is an indication of ego/foolishness of mankind.
No. Of Trades
Risk Limit / Reward [R-Multiple]
Trade Entry Time
Trade Exit Time
Average Trade Time of Winner
Average Trade Time Of Looser
P&L for No. Of Winning/Loosing Days in a Month
Minimum Profit Objective [INR XXXXX per day/week]
Average Commission Cost
Position Size Average
Morning Session P&L Average (Commodity Trader)
Evening Session P&L Average
For Equity Trader this can be equivalent to
9:15-11:30 am P&L Average
11:30 am - 2:00 pm P&L Average
2:00-3:30 pm P&L Average
These are further sub divided into different market conditions/ Days of the week/ Month (So far i have data of Average "2" January's Performance [2012-2013])