How many trades (number wise) do prop firms / clients want to see before gaining confidence?

[ScalperJoe]

VIX,

You're right, he will need LIVE results, not paper, however from my understanding from his recent post, he was going to trade it with a real account (he mentioned he had 23k).

 

[ResonanceFx]

"In one year, I'll get about 30 trades for one instrument.

- Those 30 trades will produce on average a 100% return with 25% drawdown.
- By cutting size in half, it becomes 50% return, with 12.5% drawdown,
- By cutting size by four, it becomes 25% return with 6.25% drawdown."


Sorry to be so blunt, but you can probably just stop right there and continue your regular job. Anybody who talks this way, ie literally zero live trading experience but claims he can make XX% profit per year has very little future in this biz. Especially someone who uttered the statement, 100% return with 25% drawdown. This is silly on so many levels I can't even get into it...


If you are hell bent on giving this a try, then get trading already ! Nobody cares about paper traded back tests. Until you have a 2 year audited track record, you have nothing at all. As negative as this was, I do wish you the best of luck if you choose to pursue this.

You are correct but also completely wrong.

You are correct that "projections" are meaningless for future results. Thats obvious. I dont need a lesson in that.

But you are wrong in that you dont understand i'm just providing a rough estimate based on backtested data.

Its true that history does not mean future results, but the fact remains is that history is all we have. Every trading plan in the history of the planet was first developed by testing on historical data, for the simple fact that the future hasn't happened yet.

As I said in my post, I work full time and don't plan on quitting my job. I was asking these questions because I plan on writing an automated strategy to trade about 25k of my own money passively over the next few years. Whatever happens will happen.

The 100% return with 25% drawdown statement is not pulled out of thin air. Its been tested over 15,000 data points. Those data points span 20 years (bull markets, bear markets, consolidations) on 25 different instruments (as mentioned many of them negatively correlated).

That period has seen a yearly return as high as 170% on one instrument, and a draw down as high as 63%.

The 100% to 25% ratio was an average of 500 "individual years" (ie 1 instrument 1 year). The exact figure was 23% draw down, 94% return. I just rounded up to 25% and 100%.

As mentioned I've built many systems (in excess of 50) over the last several years and learned a lot. This particular system was tested in the most unforgiving way I could by doing things like.
penalizing myself with 5 tick slippage on every trade (which is very high. A 2 tick slippage tends to simulate real life better)

The point is, I don't need insults about grade 1 level trading stuff. I'm not running a company and trading your money. I'm asking questions about trade sample size for swing trading so that I can have a road map to make decisions about how to trade MY money over the next few years with the aim of working with a prop firm or investors in the future. I am far more intimately aware of what "projections" have merit to them using my system than you are. After all i'm the one with the data. Of-course returns will not be exact, everything follows a distribution. Ultimately its my own educated guess that the next 3-4 years of bull/bear/consolidations will have the same intrinsic values as the bull/bear/consolidations of the last 20 years. If it does, the system will continue to work. If it does not, then it wont work. As simple as that.

So please refrain from insults.

 

[VIXTrader]

They aren't insults, they are for your own good. Sometimes a good kick in the ass is what people need to wake up and see the truth. It should be starring you in the face, but the fact that it's not is the reason I said something.

If you have to ask these types of questions on a chat forum, dude, you're not ready. Flat out, point blank, dead in the water before you even start. Read your questions, and tell me if that sounds professional in any way shape or form. Come on...

Look we get it, you've had some mild and super short term success and you feel you can parlay that into a career as a multi million dollar money manager. Sorry my friend, it doesn't work that way. Does the saying dime a dozen mean anything to you?

And if anything you've said is even remotely accurate and will work out the way you say, then why the $%#$ will you need a chat forum? You'd already be raking in the dough, or very soon to be.


"I was asking these questions because I plan on writing an automated strategy to trade about 25k of my own money passively over the next few years. Whatever happens will happen."


Then do it and quit blabbing like a rookie. When you have a 2+ year audited track record, then talk. But as I've said, anybody that needs to be told on a chat forum that he needs a track record is already dead in the water. You didn't even know THAT? I can't imagine what else you don't know...

 

[ResonanceFx]

I'm not interested in arguing with you, I'm here to get some insight into the question of track-records as to whether they are simply a matter of time traded, or does sample size matter more (ie # of individual trades executed).

The answer to that question dictates how much money I invest, what time frame I choose (1hr or 4 hour), whether I trade markets with more volatility for more signals, whether I use a scaling entry to increase number of trades (hurts performance a little bit, but gives me more data points) etc etc

I'm not here to listen to goofy troll high-horsing. If your going to continue with your childish behavior please move along.

 

[VIXTrader]

Yeah because we all know that most of the great fund managers got their start by asking silly questions on chat forums...


The answer to your question is OBVIOUS ! Here's what matters to investors:

1) Annualized rate of return (2 years is the absolute minimum, with 5+ years preferred) Would like to see what happened in at least one major market drawdown.

2) High Sharpe ratio / Ulcer Performance Index with low relative drawdowns. You're new so you don't understand how important psychology is, but the drawdown size you're talking about is impossible for investors to stomach. They will bail long before your drawdown is reached.

3) Correlation to the S&P 500 (below 25% would be nice to see) Any moron can make money in a bull market, but if you can show low correlation to the S&P then you may have something. Negative correlation of course is best, because in this day in age correlations to stocks are crazy high. It's rare and valuable to have a negatively correlated system that works in the long run.

4) Is the system scaleable? If not, don't even bother.

5) Is it systematic, or is it based on your selection ability? If the latter, nobody's interested in investing in your stock picks.


Number of trades is not that big an issue. After ALL the above is satisfied, maybe you'll get an investor who wants to see a certain amount of trades, but unlikely. For the most part, enough occurrences that it's not considered luck, and low enough as to not add to trade commissions unnecessarily.


Again though, the fact that you needed this spelled out for you, does not bode well my friend. Now who knows where you'll be 5 or 10 years from now, maybe successful and I certainly hope so. But as far as where you are now, I'd say way behind the curve.

 

[ResonanceFx]

Yeah because we all know that most of the great fund managers got their start by asking silly questions on chat forums...

Who said i'm a "great fund manager" ? Its already quite pathetic how childish you behave, but on top of that you need to build up straw men to attack. Dont make up nonesense.

As for "silly questions on chat forums", what do you think chat forums are there for? For those of us who are not trolls, they are there to ask questions.

1) Annualized rate of return (2 years is the absolute minimum, with 5+ years preferred) Would like to see what happened in at least one major market drawdown.

2) High Sharpe ratio / Ulcer Performance Index with low relative drawdowns. You're new so you don't understand how important psychology is, but the drawdown size you're talking about is impossible for investors to stomach. They will bail long before your drawdown is reached.

3) Correlation to the S&P 500 (below 25% would be nice to see) Any moron can make money in a bull market, but if you can show low correlation to the S&P then you may have something. Negative correlation of course is best, because in this day in age correlations to stocks are crazy high. It's rare and valuable to have a negatively correlated system that works in the long run.

4) Is the system scaleable? If not, don't even bother.

5) Is it systematic, or is it based on your selection ability? If the latter, nobody's interested in investing in your stock picks.

Everything you have covered is cookie cutter stuff. As you say 'OBVIOUS'. Hence 80% of your brilliant advice was already addressed in my previous posts. You seem like the type who doesn't bother to read so I don't have the energy to go over it again.

You can't seem to wrap your mind around what i'm asking.

For a strategy to be statistically relevant, you thousands of data points from a variety of market conditions. A day-trader can produce 1000+ trades in a year. A swing-trading strategy like mine only produces 20-30 trades a year. A two year day-trading track-record could have a decent sample size with 3000 trades. A swing trading one like mine might only have 50 trades over those two years.

So my question had to do with how investors / hiring-prop-firms evaluate swing traders when total # of trades are so far and few between. I'm an epidemiologist by training and statistics is probably 70% of my work, so I'm understand how misleading random data can be.

But at the same time, there's no denying a large number of cta's trade long term positions that are essentially swing trading positions.

Hence I was interested from someone who is actually knowledgeable [eg a swing-trader who works with a firm] to explain this issue a bit better (namely the issue of swing trading not having enough trades to be statistically relevant and not pure chance)

You spent a half dozen posts insulting me, and then when you realize your barking up the wrong tree, you try to validate it with totally useless information that is indeed obvious.

To be quite frank, I'm not even really interested in your opinion any more. You seem pretty ignorant and I can't take actionable steps based on the advice of a fool masquerading as an authority. This is the last time I'm responding to you, so don't waste too much time getting your troll juices flowing.

 

[VIXTrader]

So not only are you comically inexperienced in trading but you're also a faberge egg when it comes to criticism. I was simply trying to save you 25k, but you seem hell bent to blow it so be my guest. You're far from the first guy on this forum who talks about prop firms and investors without having anything to show. Literally, nothing, and you're already talking prop firms.

It's cute when a 12 year old sinks his first 3 pointer and starts talking about the NBA, but it's just down right pathetic when adults without a single day of track record and only a spreadsheet of backtests talk about prop firms. Where do these people come from?

But lesson learned, next time I'll just laugh and ignore. I guess the longer term posters on this forum have learned not to take the troll bait, my bad


By the way, half a dozen is 6, not 3. But who needs math right, you've got a "backtest" that kills it !

 

[globalarbtrader]

Thanks for the tips guys.

I was debating what route to take

Route 1 : Trade with more leverage and try to ramp up my own account quickly. I have 23k to trade with.
End of Year 1: 40k (~100% return)
End of Year 1: 80k (~100% return)
End of Year 3: 160k (~100% return)

Pros: Fast money, potentially do not need any investors or prop firms in future, just trade my own money.
Cons: Risky, I have 15,000 trades backtested but you never know what the future might hold. Also investors/firms dont like high drawdown. (although it should be obvious to them that simply cutting down size will change the drawdown figure as well)

Route 2: Trade conservatively, make slow gains, but have a more "mature" track record to show for it after a few years trading.
End of Year 1: 28K (~25% return)
End of Year 1: 35K (~25% return)
End of Year 3: 43K (~25% return)

Pros: Professional steady gains.
Cons: Puny gains when I'm starting with such little capital.

I work so I dont really need to live off trading earnings, but still ... route 1 seems tempting haha.

Back of the envelope from your statistics your Sharpe Ratio is about 2.0 (would be easier if you quoted it directly) with 50% annualised vol if you run at 'max'

Lets suppose that you manage to get that in live trading. After 18 months of getting that there would only be a 2.5% chance (classic t-test) that you actually had a money losing strategy that just happened to be lucky. So that would be a minimum track record.

Thats a purely statistical test. A decent due diligence would also look at the trades you did, get some understanding of your declared method, position and risk management, think about scalability etc. Potentially good answers to these questions would reduce the track record required.

Personally I'd like to see evidence of multiple instruments being traded, since thats a good test of robustness and scalability. So if you do make the money you expect then adding more markets might be the best use of your capital.

In terms of leverage I'd personally not run this at 'max' if your aim is to run OPM. Investors are unlikely to want that kind of risk, and good ones will look at Sharpe and other stats, not just raw return. Also if you do lose your 23k then you've potentially blown your chance.

This is all a personal opinion. I have no experience of hiring or working at prop firms, but tons of undergoing due diligence by investors.

 

[fan27]

I am currently working on a portfolio of strategies with the hopes of one day attracting investor capital. I was thinking somewhere around a 5 year live track record would be needed to attract capital which seems consistent with what others have posted. Is there anything needed other than the typical reports I can get through my Interactive Brokers trading account to demonstrate the track record?

thanks
fan27

 

[ScalperJoe]

I am currently working on a portfolio of strategies with the hopes of one day attracting investor capital. I was thinking somewhere around a 5 year live track record would be needed to attract capital which seems consistent with what others have posted. Is there anything needed other than the typical reports I can get through my Interactive Brokers trading account to demonstrate the track record?

thanks
fan27

Yes, you need to get people to actually part with their money and trust you with it, and a lot of that is salesmanship. When Fisher Investments founder Ken Fisher admitted he did not see the financial crisis coming, he sent out a DVD to all clients with an apology (I have a relative who was one of his clients and saw the DVD). I'm sure he lost a lot of clients when the market crashed, but he also retained many of them. He even charges clients big bucks for going on a "financial cruise" with him.

So a lot of it is generating trust beyond just showing Interactive Brokers trading statements. You can start with a "friends and family" account at IB and scale up from there.