Survival characteristics of CTAs, traders, & hedge funds
- Thread starter JT47319
- Start date
Donât be dense people.
A) Download it. Itâs a pdf. Do a search on the web, its everywhere.
B) CTA â Commodity Trading Advisor; CTAs & hedge fund managers are pretty interchangeable, one is designated for futures and the other equities even though both can and do trade in other markets; CTAs are probably more inclined to be trend followers than hedge funds
C) 95% of retail traders fail, any other statistic is moot; as CTAs and hedge funds are the professionals, the idea would be at least to emulate their average performance (both trading and money management) if not outright surpass them.
Well, one other important statistic is that the majority of retail traders wash out in the first 6 months. Survive past that and you have an even chance of actually reaching profitability.
A) Download it. Itâs a pdf. Do a search on the web, its everywhere.
B) CTA â Commodity Trading Advisor; CTAs & hedge fund managers are pretty interchangeable, one is designated for futures and the other equities even though both can and do trade in other markets; CTAs are probably more inclined to be trend followers than hedge funds
C) 95% of retail traders fail, any other statistic is moot; as CTAs and hedge funds are the professionals, the idea would be at least to emulate their average performance (both trading and money management) if not outright surpass them.
Well, one other important statistic is that the majority of retail traders wash out in the first 6 months. Survive past that and you have an even chance of actually reaching profitability.
Commodity Trading Advisor.
Jack Schwager has written an excellent book regarding CTA's. Managed Trading.
Jack Schwager has written an excellent book regarding CTA's. Managed Trading.
Thanks for the definition.
So CTAs (hedge funds) outperform retail traders on average.
But I've read (in WSJ) that in the long run:
* Hedge funds really don't outperform mutuals funds by much. * Mutual funds don't outperform the broader market indices over the long-term.
* Broader market indices really don't outperform gov. bonds by much over the long term.
I think CTA's outperform retail trader primarily because they have more experience and more capital.
* A CTA with 100 mil account that grows 20% a year yeilds a decent profit.
* A retail trader with a 100k acount that grows 20% a year will be in trouble unless he can survive on 20K a year.
So CTAs (hedge funds) outperform retail traders on average.
But I've read (in WSJ) that in the long run:
* Hedge funds really don't outperform mutuals funds by much. * Mutual funds don't outperform the broader market indices over the long-term.
* Broader market indices really don't outperform gov. bonds by much over the long term.
I think CTA's outperform retail trader primarily because they have more experience and more capital.
* A CTA with 100 mil account that grows 20% a year yeilds a decent profit.
* A retail trader with a 100k acount that grows 20% a year will be in trouble unless he can survive on 20K a year.
I'm pretty sure that equities have outperformed bonds over the long term. You might want to check this.
Also, keep in mind correlations. Even if a bunch of different asset classes all return about the same amount, you'll want to invest in several of them to minimize your portfolio volatility if they are less than perfectly correlated.
My research into CTAs indicate that, as trend followers, they do well in trending environments when the broad market is at extremes, bull or bear. Mutual funds simply perform on a mediocre level at all times.
Hedge funds add differing risk levels from income arbitrage, distressed securities, etc. that have nothing to do with the broad market (ie doesn't matter whether the S&P500 is going up, down, or sideways).
Thanks for starting a good thread!
Does anyone know how do CTA's measure up against Hedge Funds? There have been reports that Hedge funds manage between 200 -300 Billion, not sure how much money is managed by CTA's.
I believe most CTAs are trend followers, whereas in the Hedge fund world there are 30 + strategies. Many more ways to stay mkt neutral. I keep track of about 20 Hedge funds, its amazing how many have made money year after year. A lot of them make small 1-1.5 percent a month. They average about 7-15% a year, but are very consistent with little drawdowns.
The ones with the highest returns may get a lot of press coverage but as other posters mentioned its those with the highest sharpe ratio manage most of the money.
Does anyone know how do CTA's measure up against Hedge Funds? There have been reports that Hedge funds manage between 200 -300 Billion, not sure how much money is managed by CTA's.
I believe most CTAs are trend followers, whereas in the Hedge fund world there are 30 + strategies. Many more ways to stay mkt neutral. I keep track of about 20 Hedge funds, its amazing how many have made money year after year. A lot of them make small 1-1.5 percent a month. They average about 7-15% a year, but are very consistent with little drawdowns.
The ones with the highest returns may get a lot of press coverage but as other posters mentioned its those with the highest sharpe ratio manage most of the money.
Most discretionary traders I know do not measure the risk they are taking. Day-in, day-out if they are making money, they don't care.
The bads - when the market is not going their way, then they start to review their performance and start to modify their habits here and there. There you go into the spiral down street if the modifications are harmful in long run.
Keep a log of the real-time risk taken and calculate the Sharpe Ratio of yourself. If you daytrade only, daily equity change is not enough, try at least something like 5-min. If your Sharpe is greater than 1, you are at least in the ok camp.
For example, taking a trade in emini sp that carry you through a drawdown of 5 pts first before a 1 pt registered profit is less desirable than a trade taken that only suffer 1 pt drawdown before taking the final profit of 1 pt. If the latter type of trades dominate your trade records, you will have a higher Sharpe ratio.
There are many threads here and in the web discussing about the calculation of Sharpe, will not repeat here.
The bads - when the market is not going their way, then they start to review their performance and start to modify their habits here and there. There you go into the spiral down street if the modifications are harmful in long run.
Keep a log of the real-time risk taken and calculate the Sharpe Ratio of yourself. If you daytrade only, daily equity change is not enough, try at least something like 5-min. If your Sharpe is greater than 1, you are at least in the ok camp.
For example, taking a trade in emini sp that carry you through a drawdown of 5 pts first before a 1 pt registered profit is less desirable than a trade taken that only suffer 1 pt drawdown before taking the final profit of 1 pt. If the latter type of trades dominate your trade records, you will have a higher Sharpe ratio.
There are many threads here and in the web discussing about the calculation of Sharpe, will not repeat here.