Just give up. You can post a link to the brokerage saying there is no loan. You can try to reason by asking why there is no interest if there is a loan. You can have a million dollars in your account but if you bought $1000 of forex you’re suddenly leveraged 100x. He just doesn’t understand margin, risk and leverage and has no intention of learning.
2 Likes
If there is no (implicit) loan then how can you lose more than your deposit?
Care to explain that?
In fact Futures brokers clearly put this risk disclaimer notice in front of you when you open an account : “Warning, you can lose more than your initial investment!”
In plain english that means : “Easy boys, you are playing with our money, we expect it back if your deposit cannot cover your freaking losses, you hear?”
Oh, I see what you mean now! I just typed my forum nickname and I could not find any info either. It seems that C2 does not automatically link our forum nickname with the one we use as a trade leader, on the C2 website itself (unless they are the same of course). Thanks a lot for bringing this to my attention!
And to answer your question I will create a Forex strategy on September 1, the summer months are the worst months for FX trading (lousy volatility and weird price action).
Not replying to any specific comment… Just a thought.
For most investors, perhaps the best way to judge risk versus reward for any system, leveraged or not, stocks, options or futures, is to use ratios like CALMAR, MAR and Sortino. They give you good idea as to the reward you got per unit risk.
It should be noted that for CALMAR and other ratios, most people recommend at least three years of data. I guess the corollary of that could be that unless the system has had at least three years of live trading data, the risk and reward data may not be statistically significant. Unfortunately, people on C2 flock to high flying systems even if they are new. And the systems oftne disappear by three years, either because they did very well or they did poorly. In either case, all discussions about system performance and selecting from available systems at anytome on C2 should account for this fact.
This thread was started a year ago and 17 systems were referenced. I asked few days ago as to how many of those 17 systems had >= three years of verifiable live trading data. I dont know the answer but will nto be surprised if only few did.
C2 provides Sortino ratio for each system. The other tow ratios are very easy to calculate. In the grids section, filter systems by putting Sortino >2 (which is considered a good metric). And then check the systems which have been at C2 for more than three years and have SR>2. You will be hard pressed to find the systems which have been at C2 for more than three years, have Sortino ratio of >2 and beat the market or have postive returns every year.
Thanks for reading.
Best to all.
2 Likes
Calmar, MAR ratios don’t show the tail risk of a strategy. Just Forex had a decent Calmar ratio and had been trading for a few years. The max drawdown I think was around 40% but its annual return was around 50% or more. Then the system completely blew up and went to zero! The super high leverage it was using led to this! If a system is over leveraged it can blow at any time regardless of the past max draw down.
3 Likes
I am not sure if it is reasonable and how commonly or consistently achieved, the good systems have CALMAR of >2, at least >1.5. So, at 40% or more DD, it should have had CAGR of > 60-80%. Based on what I have read, the metrics before the system blew up would have been regarded as average.
Best trading to all.
At the end, all these metrics have flaws and nuances. For example, DD of 25% which lasts only for a month has completely different meaning on investor psychology than the DD of 25% which takes a year to recover.
One of the metrics which is not often talked about is max consecutive losses. Every individual will drop the system after certain number of consecutive losses.
How the systems negative profile is handled also depends on if the system is a black box or open system. For obvious reasons, one is more likely to have greater worries trading black box systems when they are going through tough times. They have no grasp of the nature of the system to have certain degree of built in confidence about the systems ability to recover or survive.
Cheers to all.
1 Like
Why is consecutive losses so bad? What’s worse: one trade with a loss of 15% or 4 trades with a total loss of 8%
Aren’t all the systems “black boxes”? The traders don’t reveal their algorithms or methods. Maybe some traders send a broadcast explaining their thinking…
I think how the negative return is handled depends more on how the system is positioned. For example if system has bought a broad etf like ETF like QQQ and is down 7% then the investor might not be that worried. The probability that QQQ will fall 40% in a few days is very low. Now compare that to another system that has bought 15 NQ futures contracts and is down 7%. This 7% down could become 40% down pretty quickly!
A losing position that’s losing gradually is less worrisome than one that is crashing down!
Leverage is one of the biggest factors in determining if a system will blow up. In addition to looking at the max/avg leverage I like to overlay the leverage on the strategy’s equity chart to see how the leverage is being used. It is a huge red flag if leverage increases significantly every time equity falls; the trade leader is averaging down in hopes of a rebound.
2 Likes
All greta points.
Here are my thoughts…
Why is consecutive losses so bad? What’s worse: one trade with a loss of 15% or 4 trades with a total loss of 8%
As I mentioned, no metric is full proof good or bad. Afterall, it depends on everyone’s personal preference. 4 consecutive losses may be but go beyond that and people start skipping trades. Typically, many get trepidation and sit out a trade or two to stop having losses, no matter how small they may be. Not all but significant number do, I am one of them when I am dealing with blacl box systems. And, just when you skip a trade or two, you miss that 15% gain that you mentioned.
Aren’t all the systems “black boxes”? The traders don’t reveal their algorithms or methods. Maybe some traders send a broadcast explaining their thinking…
That is not true. It is true on C2 but there are several good open systems on the web where posple have shared their ideas in detail.
I think how the negative return is handled depends more on how the system is positioned. For example if system has bought a broad etf like ETF like QQQ and is down 7% then the investor might not be that worried. The probability that QQQ will fall 40% in a few days is very low. Now compare that to another system that has bought 15 NQ futures contracts and is down 7%. This 7% down could become 40% down pretty quickly!
Agreed.
A losing position that’s losing gradually is less worrisome than one that is crashing down!
May be so, but it could actually be more devastating to your portfolio.
Best.
Great point. I think basically you are warning about buying during losses hoping for mean reversion. Too many systems het burnt on increasing leverag or accumulating hoping for the trend to reverse.
Few years ago, concept of RSI(2) was popularized by many for such purpose.
For full transperancy, my own system uses mean reversion. However, it only does it in the backdrop of momentum. In other words, my system will sometimes trade Long cash during secular bull market or Short cash during secular bear market. Trading both long and short in short term requires special skills, which I have not developed.
I think leveraged ETF are great but not to bail you out of bad trade.
