Trading efficency

Discussion in 'Trading' started by sfunds, Dec 8, 2009.

  1. sfunds


    Is there any method to find trading efficency.

    what is the normal return a trader can expect

    how can you measure the returns of the trader with respect to risk he has taken

    like CAPM for long term is there any method to calculate return for short term traders
  2. This is kind of a nebulous and broad set of questions. Pre/post costs? taxes? etc? And a lot of other things.

    At minimum, use trading stats/metrics.
  3. Trading efficiency could be reverse engineered through a backtest. Run your strategy against an idealized system that had perfect information ahead of time. To get perfect information calculate the total # of % moves up and down over the test period. Thats the ideal scenario. See how well your actual system performs % wise, and also look at how it scales based on volume and then you'd have a decent marker of how predictive or risk averse the system is, or both..
  4. 1) If you consistently generate "alpha", then you can be deemed to be "efficient".
    2) Negative, less than zero percent annual return.
    3) It's subjective. It's dependent on the market environment for the system being traded.
    4) Short-term traders should earn money very consistently in order to overcome their trading costs, otherwise you should lose consistently. Success or failure happens quickly. :cool: