Personally I disagree, firstly EOY PnL is separate from daily ROI, whenever you enter into a trade you commit a certain amount of capital based not even on a margin, but on a stop size & ROI is based on that amount you are willing to lose, just like in any other business deal. It's nothing to do with ET & nothing to do with total value of 1 contract as you are not actually committing that amount.
1% a day consistently: possible?
- Thread starter stephencrowley
- Start date
Personally I disagree, firstly EOY PnL is separate from daily ROI, whenever you enter into a trade you commit a certain amount of capital based not even on a margin, but on a stop size & ROI is based on that amount you are willing to lose, just like in any other business deal. It's nothing to do with ET & nothing to do with total value of 1 contract as you are not actually committing that amount.
I agree with everything you said, but people on ET don't know the difference between ROI and PnL. Although, even ROI is a slippery thing if you don't take into account leveraged amount when comparing ROI across assets that allow different leverage.
There is a term for this. I forget what it is...
nitro
I've read the entire thread and I still don't know which calculations of profit Stephen was referring to...
If it's making 1 % a day considering the margins involved, like making about 11000 $ a year or so trading one ES contract on a 500 $ margin ( with a 20000 $ capital, which makes "only " 55% a year and 0.25 % a day to me ), it can be done( consistently every year ? not sure... )
If it's making 220 % a year on your entire capital, it's impossible, at least for the retail trader paying the bid - ask spread. I don't know for exchange members.
What is more intringuing to me is how Stephen obtains those backtesting results.
- What is the slippage you use for simulating 20 + round turns per day?
- What kind of orders do you use? ( if you dare answer... )
I don't know if he 's still around. We will probably never know what kind of results his bot can make.
If it's making 1 % a day considering the margins involved, like making about 11000 $ a year or so trading one ES contract on a 500 $ margin ( with a 20000 $ capital, which makes "only " 55% a year and 0.25 % a day to me ), it can be done( consistently every year ? not sure... )
If it's making 220 % a year on your entire capital, it's impossible, at least for the retail trader paying the bid - ask spread. I don't know for exchange members.
What is more intringuing to me is how Stephen obtains those backtesting results.
- What is the slippage you use for simulating 20 + round turns per day?
- What kind of orders do you use? ( if you dare answer... )
I don't know if he 's still around. We will probably never know what kind of results his bot can make.
Isn't it surprising how the risk (drawdowns) rise rapidly with expected average returns? You would think that an average return of 1% per day was conservative until you realise that it entails maybe a standard deviation of say 15%? So what does that mean. You can expect 95% of your daily returns to be within 2 standard deviations ( -29% to +31%). But there comes those days, say once in two years, where you can expect a whacking of -50%. Will you have the confidence to trade the next day when that happens?
I suspect an average growth of 1 % per trading day is quite possible. Readers might verify these calculations themselves:
The Cumulative Annual Growth Rate (CAGR) = (final price - initial price) / initial price / number of years. Multiply CAGR by 100 to convert to per cent.
===
Exxon stock:
Cumulative Annual Growth Rate (CAGR) is 444.63 per cent.
Greatest drawdown is 33.39 per cent.
2-Jan-75 to 30-Dec-05.
444.63 / 252 = 1.76 % per trading day.
===
JNJ stock:
Cumulative Annual Growth Rate (CAGR) is 211.76 per cent.
Greatest drawdown is 35.35 per cent.
2-Jan-75 to 30-Dec-05.
211.76 / 252 = 0.84 % per trading day.
===
All you have to do is buy and hold.
The Cumulative Annual Growth Rate (CAGR) = (final price - initial price) / initial price / number of years. Multiply CAGR by 100 to convert to per cent.
===
Exxon stock:
Cumulative Annual Growth Rate (CAGR) is 444.63 per cent.
Greatest drawdown is 33.39 per cent.
2-Jan-75 to 30-Dec-05.
444.63 / 252 = 1.76 % per trading day.
===
JNJ stock:
Cumulative Annual Growth Rate (CAGR) is 211.76 per cent.
Greatest drawdown is 35.35 per cent.
2-Jan-75 to 30-Dec-05.
211.76 / 252 = 0.84 % per trading day.
===
All you have to do is buy and hold.
Accepting your invitation to verify...
Your formula for CAGR is incorrect. You don't divide by the number of years N. You raise the relative change in asset value to the power 1/N and subtract 1. Just google CAGR.
For example, a 10-fold increase over 10 years isn't 100% CAGR; it's 25.89%. Over 31 years, the difference is even more extreme.
In addition, unless the "final price" has been adjusted for any stock splits, reverse splits, dividends, repurchases and mergers (Mobil, anyone?), it's not meaningful. For estimating long-term equity returns, it's best to work with total market cap divided by the adjusted float, as opposed to struggling with the share price.
I'm pretty sure than neither XOM / XON nor JNJ has delivered anywhere near such stratospheric order of magnitude of buy-and-hold returns over that 31-year period.