Leverage free performance stats

Hi Matthew - I think that it would be helpful for investors to evaluate vendors’ systems purely on the percentage returns of the trades, without leverage factored in. It is clear to me that the variance of performance of some systems that I am tracking is soley caused by use of leverage - for the better or worse. In reality, each investor will decide how much leverage (if any) to use. In the case of IRA’s, leverage is not even an option.

Thanks for running C2!

percentage % profits of each trade would be a great feature to have… I have been advocating it for over a year now…

currently you have to manually figure it out for each trade which is cumbersome, it would be great to have the % figure

It is simpler than you think, Isaac. 2:1, cut everything in half to get it down to 1:1. That’s a simple way. If it’s a leveraged instrument, divide by the leverage factor on the profit or loss. And divide through both APR and DD. That will give you a better idea. If you want to account for compounding raise the 1+apr to the 1/2 power and do that for DD. I do not think you should get so hung up on leverage. Just cut them in half for faster calculations on the return, and for DD.

Hi Beau - your comment is fair enough for vendors that always max out their leverage - as you do. I can say that some of the vendors that I am tracking are not consistent in this regard.

I agree with Isaac that this would be a useful feature:"It would be helpful for investors to evaluate vendors’ systems purely on the percentage returns of the trades, without leverage factored in."

Many professionals use precisely this computation to normalize returns.

It is a valid and well-recognized concept in the industry.

I am for that. Maybe even some standardized presentation of research as well. You know I would put WL on that list and nobody else. We need a trades list, %p/l, and MAE and MFE. That would help people a lot, I think. Really the vendor has to be forthcoming with these numbers, or you cannot really expect to be taken seriously. I think the problem comes with vendors not using TS, WL, or metastock in that they do not have the ability to present these bits of information and give you a false alibi that they think protects them from someone copying the system when that is never going to happen if the program is sufficiently complex.

Going back to this Isaac. You need a standardized process of your own for testing these systems. It sounds like you are more concerned with futures systems than these stock systems. Futures depend on the cost of margin and the overnight carrying trade as well as what a point value is. Most futures contracts are at least 20:1 on leverage, which implies that it would take almost 20 times the margin to realistically trade. The way you calculate that is more like, this contract takes $5000 to hold, and each point is $50. Leverage on the index is equivalent to the percentage change in the index over the percentage change in the contract. For instance, a 1 point move on the S&P is a small percent, but the contract when you divide through by the percentage change of 1 point on the s&p is much larger. That factor, where you take the percentage change in the contract over the percentage change in the S&P is your leverage factor. Basically no one here even with 100k should trade very many contracts. And, since nobody hardly ever has 100k, you should catch the drift. The systems trading fewer contracts are always better.