Is this track record good enough to attract new capital

[MichaelJ]

Quote from jnpn:


Ah this made me laugh. Generating a p-value is basic statistics.

Yes, I sort of agree. We can make a few basic assumptions and then it would seem that the average return is significantly higher than zero.

Here is my basic test - I know I am not following statistical rigor to the "t" but that isn't the point. We are just trying to get an indication if an "above average" (ie, positive) result suggests significance.

There are 34 months of returns - call that "n".

The average monthly return is 8.0% and the standard deviation of monthly returns is 14.3%.

We want to know how significant the average 8.0% return is, compared to zero. The standard deviation of the *average* with 34 observations going into the average will be about 14.3% / sqrt(34) = 2.4%. So our average of 8.0% return is (8.0% / 2.4%) = 3.33 standard deviations above zero.

3.33 SDs above the mean looks pretty significant to me.


I guess the one thing that might be good to understand the role of chance here is, there was a block of returns in late '09 that was very very good. Was there one particularly strong market trend that was contributing that via intersection with the methodology? I took that string of 4 months out, leaving a sample size of 30 months. New results are:

average return (for 30 months, ie 34 - 4) = 4.7%

SD for the 30 months: 10.0%

sample size = 30, so SD of the mean = 10.0% / sqrt(30) = 1.8%

So average return is 4.7 / 1.8 = 2.61 SDs above the mean. Still pretty good.

 

[MichaelJ]

Quote from intradaybill:


Here a challenge for you since it is so basic for you. Calculate the p-value for these performance results:

2
-1
3
4
-3
2
2
-1
1
2
-3
5
6
4
-2
7
-2
-3
4
7

What are we testing for here? Is the null hypothesis that the average return is zero and the alternative that the average return is significantly higher than zero?

 

[intradaybill]

Quote from MichaelJ:

What are we testing for here? Is the null hypothesis that the average return is zero and the alternative that the average return is significantly higher than zero?

Something like that.

Null: the mean return is zero
Alternative: the mean is greater than zero

This is fairly standard.

 

[intradaybill]

Quote from MichaelJ:

We want to know how significant the average 8.0% return is, compared to zero. The standard deviation of the *average* with 34 observations going into the average will be about 14.3% / sqrt(34) = 2.4%. So our average of 8.0% return is (8.0% / 2.4%) = 3.33 standard deviations above zero.

3.33 SDs above the mean looks pretty significant to me.

Think were you went wrong.

 

[MichaelJ]

Quote from intradaybill:

Think were you went wrong.

I'm not sure where I went wrong. I'm guessing you have a different measurement of the uncertainty or somehow adjust the standard deviation, such that while I do 8% / 2.4%, you so 8% / 5% or something like that?

Enlighten us...

 

[MichaelJ]

Quote from newtraderg:

Folks,

Would really appreciate any comments.

You should get in touch with Peter L Brandt (he has a blog - I'll PM you the link). Seems like a similar trading style to yours (Edwards & Magee chart patterns, heavy futures/FX focus).

 

[YuforaCapital]

Quote from newtraderg:

Folks,

I see lot of encouraging posts about people starting their own hedge fund or atleast managing friends and families money.

I have been trading full time for almost 3 years now. I trade mainly FX and commodities-

Here is my month by month performance since July 2008-
2008-
6.81%, 6.41%, 0.31%, 21.66%, 4.04%, 2.58%
2009-
0.09%, 6.03%, -1.3%, 5.05%, 9.28%, -0.01%, 3.89%, -2.75%, 22.77%, 56.82%, 37.54%, 13.88%
2010-
-8.43%, 2.76%, 12.86%, 0.86%, 26.06%, 1.23%, -20.45%, 1.84%, 11.64%, 1.72%, 7.71%, 13.88%
2011-
1.48%, -4.42%, -2.00%, 31.97%

All the returns are calculated on the starting capital at the beginning of the month adjusted for any withdrawals

My starting capital was 100% personal line of credit that I used(I know thats a total no no when it comes to trading, but that was the only source of money I had)

I have been withdrawing money periodically to payoff the line of credit, pay living expenses for my family(this is my only means of income) and pay taxes. As, a result my account growth hasnt compounded as much.

My question is if I get these results audited, are they any good to attract outside capital

Form an incubator fund if you want to attract serious capital.

 

[YuforaCapital]

Quote from newtraderg:

Regarding scalability - Most of my trades are in FX, Gold and Crude.

In FX for example my typical trade is for 500,000. On IB most of the times I see bid/ask for upto 10M(depending on the pair) within a few pips.

I think If I was managing upto10 times what I am right now - about $6M, I can trade the same strategies without any loss because of the increase in size.

Anything more I am not sure, till I have a track record to prove the same strategies work on an account size of $5M-$10M

I believe a small hedge fund has AUM of less than $100 million, which most institutional investors avoid. Hell if you can attract that much capital at 2% management fees, you wouldn't even be on ET asking people for advice...You'd be giving it!

Good luck!