Survival characteristics of CTAs, traders, & hedge funds

J

JT47319

How do CTAs' Return Distribution Characteristics affect their likelihood of Survival
http://www.turtletrader.com/mfa-articles/diz-rez.pdf

Note: This is not the real turtle site, but it does have some good articles to download.
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I was going to post this in Aaron's thread, but I thought this deserved its own thread and was applicable to all of us who are either starting out and trying to survive or veterans looking to refine their returns/technique.


Here's an interesting article that I found concerning those CTAs that last the longest and the survival characteristics that they have in common. My reading observations:
Highlights:
CTAs have a 50% survival rate; better than daytraders or new business failure rates, but significantly less than mutual funds

Survivors are better performers, but the best performers weren't necessarily the survivors

Monthly returns weren't indicative of survival capabilities; as in the "trader's edge" did not give the CTAs an edge in surviving

Survivors survive by praticing money management:
1) they experienced lower than average max drawdowns
2) recovered from drawdowns faster and more consistently
3) were less volatile
4) had better Sharpe ratios than non-survivors

There was no advantage of a "diversified" or "non-diversified" CTA, but systematic CTAs were better survivors than discretionary CTAs

Variables that influenced mortaltiy rates: max monthly return, sharpe ratio, avg monthly winning return, management fee, incentive fee, std dev of monthly returns, max monthly drawdowns, max time to recover from drawdown as % of business life, and max # of months to recover from drawdown.
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Anyways, good reading and if someone has anything more along these lines, please feel free to post. I already track Sharpe ratio and the obvious stats, but I'm definitely going to try and incorporate some of these findings into my recordkeeping to make sure that I both emulate and maintain good survival/MM techniques.
 
JT47319:


Thanks! Interesting stuff. I'll definitely look into it. And something to think about.

I've always heard money management is the most important part of a trading system, strategy, or method you use. That's what separates the winners from the losers and the average winners from the super winners.

trader99
 
if you read Vic Sperandeo's books, he says basically the same thing.

He was ( and is ) a consistent survivor, and one of the best traders, but he fully admits he never won a trading contest in his life, and has been outperformed for short time periods by many people that eventually blew out.
 
Quote from dotslashfuture:

the "super winners" don't last. you have choose between getting rich quick and long term survival.
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I totally agree with you... slow and steady is the only sensible way to play this game...
 
Small gains, smaller losses with a minimum 2-1 ratio. Even if you have a horrible winning % you can at least stay alive long enough to hone your abilities.
 
Quote from EliteThink:

Sticking with a well researched plan and following strict money management is what I hear is required to be successful.
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I have to agree with you that "sticking with a well researched plan" is key for trading success. But money management is 90% of the game. For instance, you can have a dismal accuracy rate of 33.4% and still make money (gross) if you stick with a minimum 2-1 ratio. Absolutely refusing to take profits/take a loss unless it hits either of those stops will keep the newbie in the game and help the pro`s get through tough times.

Good luck and stress free trading to all!
 
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