Hot Hands... Performance measurement

Wouldn’t it be more fair for the Hot Hands to be based on percentage returns instead of dollar returns? This is much easier for a bigger acount to make more dollars per time period than for a smaller one.

For example, a system could be open for a while and the account value stand on 500K. A 1% return for the week would be $5000. For a system not open as long and stand on 150K, a 2% return for the week will be $3000. The 500K account will be listed as a “Hot Hand” before the 150K will, but in reality the 150K account would be “hotter”.

For the same reason, I think this might be better to have a more standardize way of measuring performance results. With dollar values, someone with a better money management strategy will be doing better than someone who might trade a better system but don’t increase the numbers of stocks, or contracts as aggressively, but could have a better system based on standardize 1 stock, or 1 contract over contract margin for futures. With an 100K account one is more flexible with money management routines, than a subscriber who might only have 10K to start off with. A subscriber might subscribe to a system because returns look very good based on a 100K account with excellent MM stragegy, but might miss out on a system who is actually better, but its owner does not apply as good MM strategies.

I think the systems returns on here are highly affected by the kind of Money Management strategy an owner use and make it difficult to do fair comparisons.


- Fanus

PS: Please do not take this as critisism. I enjoy the site and service. Just some thoughts I had…


I agree with you and I hope MK would make the required modifications to the “Hot Hands” feature.

I have always maintained that it is “Position Sizing (bet size)” influenced by strategies like pyramiding/pillaring that determines your net profit or return. That is why the Profit Factor (W:L ratio) along with Expectancy Score which could be approximated by annualized return/week as at C2 is the ideal way to judge a system as opposed to ranking by annualized return alone which unfortunately is what the “Best Systems” feature is based on.

rgds, Pal

Sorry, I meant to say Expectancy Score which could be approximated by return/week, not annualized return/week.

rgds, Pal

Case in Point:

Dave’s Goofiz ATM has the following as part of its statistics: Age: 19 weeks, Profit Factor (W:L ratio): 4.6 and Return: 435.2%

OEX Trading System has the following:

Age: 10 weeks, Profit Factor: 6.5 and Return: 211.6%

If we multiply Profit Factor by Return/week we get the following for each of these systems:

105.36 ( ( 435.2 / 19 ) 4.6 ) for Dave’s Goofiz ATM vs 136.5 ( ( 211.6 / 10 ) 6.5 ) for OEX Trading System.

Now, which is a better system? Ignoring Profit Factor it seems to be Dave’s Goofiz ATM, but when taking Profit Factor into account, it seems that OEX Trading System is better, which is what I think it should be.

The present ranking system which the Longer Term systems list is based on totally ignores Profit Factor not to mention the “Best systems” feature.

rgds, Pal


Could you please evaluate my Dave’s Goofiz Option Extreme? It has a profit factor of infinetity. :slight_smile:

Then your result will be very funny.

Sorry, cannot grant your request as the Profit Factor for Dave’s Goofiz Option Extreme is yet to be determined :slight_smile:

Also, if there is a tie between systems based on the above calculation, then the Sharpe Ratio can be used to break the tie.

Nobel Laureate Harry Markowitz discovered that when you have 2 portfolios with the same average arithmetic rate of return, the one with the lower standard deviation (or volatility) expressed in the form of a higher Sharpe Ratio will have a higher compounded rate of return. Note that I made no mention of the % wins statistic.

In the final analysis, investing is like the fable of the tortoise and the hare. Slow and Steady wins the race.

rgds, Pal

My comment: don’t try to use equation, just try to use common sense.

I don’t care who won Noble price or not. I think many things could be explained with common sense. It is those noble prize winners who tried to make easy things complicated.

Just use common sense, many problem could be solved.

1, Anualized return.

2. Standard deviation (volatility)

3. Trading veihcle.

4. Number of trades.

5. …

6. …

7. …

Well, anything one wants to measure, has to be quantified numerically. All scientists know this. I assume you are not.

rgds, Pal

I am a PhD but dissertation. I think I am a scientist. My major is very mathematic. I know what equations are.

I don’t want some leaves to block your eyes, I want to see the forest.

If I we were given 2 forests of nearly identical size of the trees, how would one determine which forest has greater volume of trees, if one does not quantify, say in terms of the number of trees/square foot and the total area of the forests all of which can be measured numerically based on logic?

Logic is the method of observing facts (the premises), then consulting the law of contradiction, then drawing the conclusion that this law warrants. Logic, in other words, is "the art of noncontradictory Identification."

It is important to note that the process must be grounded in observed fact. To derive a conclusion from arbitrary premises, which represent subjective whims, is not a process of logic. If logic is to be means of objectivity, a logical conclusion must be derived from reality; it must be warranted by antecedent knowledge, which itself may rest on earlier knowledge, and so on back, until one reaches the self-evident, the data of sense. This kind of chain and nothing less is what science requires as “proof” of an idea.

“Proof” is the process of establishing truth by reducing a proposition to axioms, i.e., ultimately, to sensory evidence. Such reduction is the only means man has of discovering the relationship between nonaxiomatic propositions and the facts of reality.

Many people regard logic not as a cognitive function, but as a social one; they regard it as a means of forcing other men to accept THEIR arbitrary ideas. For oneself, according to this viewpoint, a farrago of unproved assertions would be satisfactory; logic, however, is necessary for polemics; it is necessary as a means of trapping opponents in internal inconsistencies and thereby of battering opponents in internal inconsistencies and thereby of battering down one’s enemy.

Such an approach is to be rejected. Proof is not a social ritual, nor is it an unworldly pursuit, a means of constructing rationalistic castles in the air. It is a personal, practical, selfish necessity of earthly cognition. Just as man would need concepts (including language) on a desert island, so he would need logic there, too. Othersise, by the nature of human consciousness, he would be directionless and cognitively helpless.

If man knew everything about reality in a single insight, logic would be needless. If man reached conceptual truth as he does perceptual fact, in a succession of unconnected self-evidencies, logic would be needless. This, however, is not the nature of a conceptual being (man). We organize sense data in steps and in a definite order, building new integrations on earlier ones. It is for this reason that a method of moving from one step to the next is required. This is what logic provides.

The method of logic, therefore, does reflect the nature and needs of man’s consciousness. It also reflects the other factors essential to a proper method: the facts of external reality. The principle which logic provides to guide man’s mental steps is the fundamental law of reality.

rgds, Pal


If Jim Rogers can write a book called “Investment Biker”, you can definitely write one called “Investment Philosopher”.


Right, trader is definetely different with writer.


Very good point. I second your request.

Ben Millane.