How good a track record is good enough ?

Discussion in 'Professional Trading' started by tzheng, Aug 19, 2003.

  1. tzheng


    I have been trading on my personal account for about 4 years now, and just recently start to feel consistency and calmness in my trading. I have a full time job and only IRA money ($30K+) to trade, with the 3 business-day settllement rule for cash account, my capital utilization is really low, still I managed 5% return per month for a few months, using only day-trade long strategy. Even when overall market went down, I still can only do long.

    I am thinking about expanding out, and that likely involves efforts to convince other people I am good. My question is how good is good enough ? A record for 3 months, or 6 months ? Beat SPX by 5%, 10% ?

    Thank you all.
  2. Try 5 years as a meaningfull record.

  3. How good of a salesman are ya?
  4. jessie


    You might get a few accounts with a track record measured in months, but any real money will want to see a few years, through a variety of market conditions. They will also especially want to see how you handle a BAD period, and what your "bounce back" is like, e.g. do you grind back up in a timely, orderly way, do you desperatly overtrade, or do you freak out and get paralyzed?. Neither you nor they will know that until it happens a couple of times. As for "how good", that is really somewhat less important to many people, especially institutional money, than your risk control and money management parameters. Your correlation to other markets is also a big consideration. If you do a little worse than the S&P, but do it during bear stock markets, that might be viewed more favorably than beating it by a bit when the market was up. Lots of folks are looking primarily for portfolio diversification from alternative managers. Hope some of that helps,
  5. If you are looking for seed capitol from others than friends or family you will need at least a 3 year audited track record.
  6. 3-yr track record is pretty standard if you're looking for outside capital.

    Also, if you are not structured correctly (formally a hedge fund) during that 3-yr track record. This could be a problem for potential outside investors or institutions.

    Anyone else shed light on this?!?!?!
  7. whowah


    I would look at the following to determine if a track record is goo..

    The number of trades has to be sufficiently large so as to cancel out any "good or bad luck" from the sample. 200 trades on a swing or position trading method would probably be about right. On a day trading system 1000 trades wold b a good sample.

    Assuming a "long only" strategy the track record should outperform the market in up periods and lose less money (outperform) in down periods as well. It should be tested in both up and down market periods.

    The equity curve will go up and down but the maximum drawdown is a key criteria. Even if your method shows a positive expectancy over time (is a winning system) but has regular drawdowns of 50 percent or more it is unlikely people will want to invest in a manager with this kind of volatility.

    Your track record should be based on a wide sample of trades and the position sizes should be about equal. If you are trading stocks and pick one big winner , like SOHU , and that is a major portion of your win then I think your results would be unreliable a a predictor of your future performance. On the other hand if you were only trading S&P futures and had a few big wins and a lot of small losses this might be more acceptable.

    Your record must include all transaction costs and contain realistic fill prices.

    From what I guess is the type of trading you do three months does not tell you anything. Especially if you were using a long only strategy and those three months were april-june 2003.

    I will use as an example my hypothetical fund at marketocracy. My 3 best months showed a +62.20 return and my 3 worst months showed a -24.64 return. In about a year I am up about 34 percent and no one position accounted for over 5 percent of my portfolio. I have in that year had three drawdowns over 20 percent and 2 of them were near 30 percent. In my real money (small) account at IB my average monthly return is 3 percent but my standard deviation is much higher. 24 percent vs 13 percent.

    I believe that the system I developed and am using is a winning system but . . . For me to be sure that my results are good I would like to see a three year track record of superior performance relative to the S&P or NASDAQ.

    Hope this helps.
  8. I don't think outside money would be interested in a part-time trader with a full-time job. The expertise just isn't there. I certainly wouldn't invest with someone who trades very small volume on a part-time basis and who has a buy-side bias, regardless of track record.
  9. Hi tzheng,

    What do you mean by, "expanding out" and who are the "other people" that you want to convince?

    How do you find them?

    Basically, what would be your ideal situation?


  10. Congratulations on being profitable using a long-only strategy. But what are you going to do when the market reverses its upward bias? You should first look into trading outside your IRA.

    I should just focus on building your own account for a few years.
    #10     Aug 19, 2003