Hi Guys, I am finishing a study on a Futures Trading System I have designed, which I am presenting to a fund manager shortly. I have a question regarding the correct use of M/E and if the way I increase position size in the study as the account changed in value over time is sensible. FWIW, I am very aware past results are not indicative of future performance. Time studied 6 years Seven uncorrelated futures markets (I know EUR and AUD are correlated) Expectancy 1.95/1149 Trades My initial margin requirements for all markets trading one unit equivalent in value per market is $68K. (2011 Margin levels) I am setting an average of $10.000 per instrument. AUDx300K IB Frx EURX300K IB Frx CLx1 GCx1 ESx2 ZNx5 SBx3 1st Year M/E @ 50% ($136.662) to keep initial investment under $150K I plan to use M/E @ 30%, after acct value reaches $225K. Hypothetical results without increasing position size show: --------- P/L------- $136,662 ROR 2005 $59,701 $196,363 43.69% 2006 $143,789 $340,152 73.23% 2007 $124,942 $465,094 36.73% 2008 $370,612 $835,706 79.69% 2009 $198,121 $1,033,827 23.71% 2010 $242,965 $1,276,792 23.50% Average 46.76% Hypothetical results adjusting position size as unit trading size of $225K multiplies. Units------- P/L-- $136,662 ROR 1 --- 2005 $59701 $196,363 43.69% 1 --- 2006 $143789 $340,152 73.23% 1x --- 2007 $124942 $465,094 73.46% 2x --- 2008 $741224 $1,206,318 159.37% 5x --- 2009 $990605 $2,196,923 82.12% 10x --- 2010 $2429650 $4,626,573 110.59% Average 84.28% Are these calculations correct?
Hi there, That's a big mish mash of numbers, not to sure what to tell you. Unlikely anyone has time to re-check for arithmetic correctness. Instead, can you ask a specific question about concepts you are confused by?
Of course. Sorry I couldn't fit numbers properly but the site or my browser didn't let me. If trade size is dependent on M/E ratios alone, can I increase size according to account value at the end of each trading period, i.e. end of every year? If I did, and the reason I included numbers for reference only, is that my system shows almost double avg yr return (84% instead of 46%) with the same level of risk (M/E @30%adjusted) for the same 6yr period . This is too good to be true imo. So I am asking. Thanks.
I mean, you can do anything you want. It's not like there are any regulatory rules involved here. Just make clear what you're doing to your investors, the only ones that matter. If you told me that you're maintaining a consistent M/E ratio.. then I'd expect a consistent M/E ratio, meaning you increase the size of positions as the size of E increased. I'm still not sure if I'm interpreting your question correctly. Doubling your position size will certainly double your yearly return, if you happened to have up years... but it would have also doubled the loss, if you happened to be down. So... don't see how it in and of itself is an edge or disadvantage either way.
Thank you Heech. I've included a pick that best shows what I am trying to figure out. In the second square, if I adjust unit size to ME% according to end of year balance, for 2010 I would have gone to 10 units approx (from 5 the yr earlier). as: One unit margin = $ 68,331 / ME .3 = $225.000 Acct balance at the end of 2009 $ 2,196.923 / 225.00 = 9.76 units If this is correct then compounding profits through a positive expectancy system is very impressive indeed, **if risk remains equal**. That is what I am trying to find out.
I'm still not clear what you're asking. But I mean... looking at just your first chart, and just assuming you just withdrew your profits at the end of each year... so we just divide PNL each year/starting size ($136k) , your performance would've been: - 2005, +43% - 2006, +105% - 2007, +91% - 2008, +272% - 2009, +145% - 2010, +178% So, yes, with those kinds of returns, compounding will do amazing things. No, I don't believe those kinds of returns are realistically achievable.
You are correct. After re-reading my post I see I didn't articulate my question properly. Excuse me. It is, and I hope I can clarify. For a Futures portfolio that uses M/E @ 30%, is unit trading size adjusted to reflect 30% M/E of the new account balance at the end of each year, for the subsequent year? It this the legitimate way to increase position size for margined products without increasing risk, all else being equal? FWIW, Yes those numbers are hypothetical.