Track record questions

Discussion in 'Professional Trading' started by illiquid, Nov 22, 2006.

  1. 1) For an individual short-term futures trader, what time frame would be most important is terms of max DD and peak-to-trough figures? It's highly possible that a good short-term trader would have higher dd's the shorter the time frame considered -- ie, max daily drawdown of -10%, max weekly drawdown 2%, monthly 0 etc; is there a standard?

    2) Which of the following performance record for trading futures would be more impressive for the ultimate purposes of attracting opm:

    Trader A turns 20K into 100K in the course of one year, trading strictly with position limit of 1 contract/10K of capital, max monthly drawdown 5% (say 2 months, non-consecutive, the rest are positive)


    Trader B turns 20K into 200K in the course of one year, no position limits, max monthly drawdown 10% (again, 2 months, non-consecutive).

    Wouldn't trader A's figures be far more attractive, given that he was limited to a certain ratio of contracts to capital? And conversely, that no matter how good trader B's returns are, the fact that he traded with no limits on position size would make his #'s suspect, requiring a full trade by trade audit to really determine if he was actually good or just plain lucky?

    Or are neither of these figures particularly impressive, given one is trading futures to begin with?
  2. rwk


    I think most investors would consider "Trader A" record preferable. Investors will start bailing at 5%, so I recommend de-leveraging even more. Try to keep max drawdown under 1%. Don't forget, your all-time biggest drawdown hasn't happened yet.

    Also a 400% return on $20k typically doesn't impress knowledgeable investors. If you can do 50% on $100k (or more), you'll score more points, especially on low drawdown.
  3. So all would be well if Trader A just deposits 80K more cash in the account to begin with, and kept the trades exactly the same? Wouldn't the sharpe ratio be exactly the same?
  4. rwk


    I think that is correct.
  5. If investors in a managed futures fund "start bailing at 5%", maybe it's high time to find new investors ASAP. Even a buy-and-hold index mutual fund will routinely have drawdowns greater than 5%, for crying out loud. Generally, you can't have your cake (triple-digit returns) and eat it, too (single-digit DD). Well, not in a managed fund, as opposed to a private, multi-strategy account.

    Second, focusing on monthly DD probably isn't going to be enough. In my experience, investors care about each meaningful DD, regardless of its duration. That duration and the subsequent recovery period are going to be scrutinized as well.

    Third, if trader B is using variable MM / position sizing, his track record could still be more attractive than trader A's, on a risk-adjusted basis. "Risk-adjusted" here might mean equivalent leverage or equal % DD. How to find out? One good way is to separate the contribution to return from trade selection and the contribution to return from position sizing. Then compare each, separately, between traders A and B.