If you have a small account, then you would need great/riskier returns to justify it. -- if your account is larger, then smaller/safer returns are fine. (hint: you can't expect to daytrade stock in this day and age and expect to get rich...look for something more...volatile...:eek: )
Min 15% annual compounded return at least, otherwise it is not worth your time. Equity peak to valley draw down should be contained within 20%. If you have DD larger than 20%, you have problems. Just calculate the hourly pay. Hours spent in a year divided by your return. If too low it is a waste and one should do something else that pays more, like becoming an entrepreneur and starting your own business.
I do karate for exercise and fun, never likely to pick a fight or get picked on. I judge trading several ways: 1. MONEY! Beat sp500 2. MONEY! Beat day job 3. Opportunity cost, i.e. MONEY
1) One that can define the time frame that produces statistically repeatable outcomes outside of the computer driven, random movements of the short term. 2) one that frees up a person from spending all of one's time in front of a screen
You have a very narrow view of martial arts.People certainly don't study Kendo,Iaido,kyudo,tai chi ,aikido,etc to fight. Depending on one's desire and chosen style of Karate,the practitioner may study for fighting or not.Not every style is as robust or contact oriented as Kyokushin. Truth be told,if you really want to learn to fight,you better train in an art with excessive contact like Judo,Bjj,Muay Thai,Kyokushin. I do agree with you 101 percent on trading.
Agree with the earlier points about referencing a benchmark. The benchmark should be appropriate. If you're just trading US stocks, then the S&P 500 probably makes sense (you'd do much better with a wider set of assets, but thats another story). 15% return on 20% maximum drawdown works out at a sharpe ratio of 1.5. That strikes me as rather optimistic. Many highly diversified sophisticated hedge funds get a sharpe of 1.0 or less. I'd expect my return to be significantly less for that drawdown. FWIW I expect to make between 10% and 20% a year over the very long run, with a maximum drawdown of 40%. Yes, you should be compensated for the time you put in, over and above getting a decent return on capital*. Let's say you expect to make 5% a year from buy and hold investing (reasonable if you're limiting yourself to just US stocks). If you make 15% spending all day trading; then you're being paid 10% of your capital** to work say 10 hours a day. If you've got a $250K account you're being paid $10 an hour. That's less than minimum wage in the UK. * And all of this of course is after commissions and other costs of doing business. ** This is ignoring the extra risk you're probably taking on that makes that extra 1% less valuable than the other 5%. As I trade systematically with a fully automated system my hourly rate is somewhat better. But you need to be careful about not over leveraging to get the return you need to properly compensate for your time, if you've got a small account size. GAT
Unfortunately answering your question "quantitatively" as you asked is difficult because the amount made in the markets depends on the skill of the trader even more than the system he/she uses. It has actually been said that the weakest part of any trading system is the trader. That being said please let me give an answer from a qualitative standpoint. A successful trading system first should have a very humble and disciplined trader. With humility the need to "be right" won't cloud your decision process when your trade is losing money and discipline will allow you the fortitude to stay in a trade that apparently "stands still" until the market decides it's ready to concur. Lastly, because the market moves in at least three directions I know of, an array of "approaches" may be superior to one single system. Martial artists call this single system thing "one sidedness". Btw Martial arts are excellent at building humility, discipline and awareness - all important elements of a successful trader. I wish you all the best with your trading
In order to back test, the devotee writes a strategy to the best of his/her ability. Any variable (and there are many) that is not accounted for in the coding is thus treated as a fixed value in the back testing. Thus the entire outcome balances on a small proportion of big winners. I might add that a discretionary approach using a mechanical strategy should convert all fixed values into variables. Oh the sheer power of the human mind. Also bear in mind that the devotee's propensity for risk should never be allowed to remain a fixed value. It must be accounted for as a variable if the outcome is to have any value beyond being just another computer game. Ironically, I imagine that people who spend years coding and backtesting strategies have a very low propensity to identifiable risk and are thus unsuited to trading. This does not deter them in any way and they box on building back tested strategies that they cannot bring themselves to trade. If that amount of time and energy was devoted to the real time screen, they may eventually overcome their fear of reality and turn it to their advantage.