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Discussion in 'Trading' started by virtualmoney, Feb 21, 2008.

1. ### virtualmoney

Is there a standard performance indicator for a trader?

I notice that trader's perfomance based on %return or sharpe ratio are not sufficient to gauge the quality of a trader.

(sharpe ratio alone cannot indicate trader is generating enough cash returns)

May I propose a "Trader's Performance Index" (TPI) ?

TPI = %R X (%R / %DD) X %t,

for example 90% return, 30% max DD, 12 months time frame

TPI =0.9 X 0.9 / 0.3 X 1.2 = 3.24

TPI X Scalability (meaning Liquidity)

= Comparable Number to compare various strategies

3. ### virtualmoney

Good suggestion as an extension to TPI.
Keep them coming.

4. ### psheridan050

What do you mean by liquidity in this formula?

5. ### Dustin

You have to factor in leverage or max BP used vs. gains in order to include all prop traders. % returns mean nothing to them.

6. ### nonlinear5

There is a big bias in your formula because it contains the squared return term. Think of a trader B who returned 180% with 99% DD, 12 months time frame

TPI =1.8 X (1.8 / 0.99) X 1.2 = 3.93

According to the result, this trader is a better performer than the one whose TPI is 3.24, while in reality, trader B was essentially ruined by the 99% drawdown. The TPI formula needs work.

7. ### virtualmoney

No matter what kind of calculation is involved, the basic %R figure should be one of the factors included in measuring a trader or system.
Chop shops, so called prop firms, can use whatever they want, level of leverage, etc, if prop traders do not show %R & %DD, then they are just not transparent with much to hide.

TPI = %R X (1-%maxDD) X %t?

8. ### Dustin

OK so how do you suggest we do that? Most prop traders sweep their accounts each month to the minimum balance but the buying power remains the same.

9. ### nonlinear5

This is better, but still biased. Compare traders A and B:

Trader A returned 40%, had 30% Max DD, but his account also experienced 25% drawdowns every single day.

Trader B returned 40%, had 35% Max DD, and no other drawdowns greater than 1%.