Discussion in 'Trading' started by Peternam, Dec 28, 2012.
Any input on this ?
Well, let's see if we can go by the empirical evidence. There are 20,132 trading systems listed at www.collective2.com. Among those, only 19 systems have the Sharper ratio greater than 2 over the last 365 days. So, you'd be in the top 0.1% if you accomplish this. That is, you'd beat 99.9% of all the other systems.
Sounds about right... probably similar statistics at databases like BarclayHedge and IASG.
What's interesting is that, apparently, naive option-writing funds dominated all of these performance tables from 2002-2007... many running with > 4 Sharpe. And we all know what happened ater 2008.
So, even if you have a Sharpe over 2... make sure you understand why, and whether it's even significant.
So a Sharpe over 2 is amazing for a directional trader..
Yes, you are seeing the same effect now on Collective2, nearly all the high Sharpe strategies are selling premium, all since 2010. Looking good ... until the next major vol spike.
Sharpe is not a good risk measure for negative skew trading strats.
For any type trader, as a matter of fact. The key is the length of your trading history, of course. For example, my Sharpe over the last 2 months is 2.6, but this was an exceptionally good time for my strategy, and I don't expect it to be that high over the entire year. Consistency over significantly long periods of time is of utmost importance, and the laws of probabilities make it very difficult to maintain it. That's because markets change faster than the traders and their trading strategies.
Market Makers routinely have Sharpe ratios > 2.0...
My ratio over the past 13 years is 2.87.
And I have had 3 years with Sharpe > 4.0...
And one losing year out of 13 which had a negative Sharpe...
Totaling 1,000,000 trades averaging about 300 shares.
You could never do this with any directional strategy...
Or without a VERY diversified long/short Portfolio.
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