I have just seen so many people come on here use huge amounts of leverage and then have their account blow up. To judge if the returns from a trader are due to skill or margin, I have started trying to judge them as if I was trading their strategy with no margin or leverage.
So, take a real example of a strategy that only trades Dow mini contracts and only trades one at a time. The first trade occurred on November 27, buying one contract for $23,543. If I was going to trade this strategy using no leverage it would require that I have an account with $23,543 * 5 = $117,715. As of today that strategy equity curve on C2 has grown from $7,500 to $14,536, a gain of $7,036. Now with the way C2 calculates it that is a cumulative gain of 94%! However, my method of adjusting for margin would say that the $7,036 as a percent of $117,715 results in a cumulative gain of about 6%. Over that same time period the Dow did about 5.1% based on closing data (not sure on a minute to minute comparison).
- Do you think it is fair to do this strategies to compare them and test the skills of the trader?
- Do you do anything similar?
- In this case would you attribute the 94% return to margin or skill?