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katastrofa
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Joined: August 16th, 2007, 5:36 am
Location: Alpha Centauri

Investment performance

February 15th, 2014, 9:11 pm

How to calculate the performance of an FX trading model/strategy with the following balance from the past 12 months? The jumps are profits relocated to low-risk investments (such as equities or index trackers), which I also actively manage.I've been asked about my annual Sharpe ratio. The number I get by dividing the agerave logarithmic return by its standard deviation is too high. Is it because I sweep some risk under the carpet by relocating the profits into low risk investments, which isn't accounted for by the standard formula? On the other hand, the low-risk investments also bring profits, which means that including them would increase the Sharpe ratio.How would a professional trader calculate it?a
 
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farmer
Posts: 13479
Joined: December 16th, 2002, 7:09 am

Investment performance

February 16th, 2014, 3:00 pm

1100 equals 12 months? Anyway, it depends whether you are scalping or writing deep OTM EURUSD options, or whether 1100 means seconds, and that all came from one trade.
 
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farmer
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Joined: December 16th, 2002, 7:09 am

Investment performance

February 16th, 2014, 3:05 pm

Obviously the investment performance sucks, or you would not have pulled out a third of the money.
 
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acastaldo
Posts: 1416
Joined: October 11th, 2002, 11:24 pm

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February 16th, 2014, 3:06 pm

Just visually it does look like a spectacular Sharpe ratio. Triumphal music and alarm bells are sounding in my ears at the same time.
Last edited by acastaldo on February 15th, 2014, 11:00 pm, edited 1 time in total.
 
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farmer
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Joined: December 16th, 2002, 7:09 am

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February 17th, 2014, 12:14 pm

Let me guess. You live in UK, and this is your savings account priced in euros? Right when I was about to ask to invest...Your sharpe would look a lot better if you used some of my money to make up those dips.
Last edited by farmer on February 16th, 2014, 11:00 pm, edited 1 time in total.
 
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Ultraviolet
Posts: 1655
Joined: August 15th, 2012, 9:46 am

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February 17th, 2014, 10:25 pm

She asked for an opinion of a professional trader, farmer.
 
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farmer
Posts: 13479
Joined: December 16th, 2002, 7:09 am

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February 18th, 2014, 1:24 am

QuoteOriginally posted by: UltravioletShe asked for an opinion of a professional trader, farmer.I don't do anything but trade. Most people who trade also do something else, like trade and market their trading, trade and raise children, trade and dress up in a suit.I think the number of people in the world who have seen as high a percentage of ticks in the past year, live with their own eyes, is very small.Trading with other people's money is so common, anyone with good phone skills can do it. I turn down offers from other people to trade their money from time to time. If I ever had to use other people's money to feed myself, I would consider myself a failure at meeting the challenges I am interested in.Making something from nothing is a challenge equal to my life expectancy. If it were easy, I would have to find something else to beat my head against.
Last edited by farmer on February 17th, 2014, 11:00 pm, edited 1 time in total.
 
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Ultraviolet
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February 19th, 2014, 3:43 pm

Didn't you work in an IB or a hedge fund in the past, farmer?
Last edited by Ultraviolet on February 18th, 2014, 11:00 pm, edited 1 time in total.
 
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farmer
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Joined: December 16th, 2002, 7:09 am

Investment performance

February 19th, 2014, 4:09 pm

QuoteOriginally posted by: UltravioletDidn't you work in an IB or a hedge fund in the past, farmer?Not that I can think of. I am pretty old, so I may be missing the obvious.Definitely not an investment bank, I would remember the elevators.It is not that I have a bad memory. But when people say "didn't" usually they have something in mind. So it is as if they are asking you to clarify or remind them of a known fact. It is like you are asking for a specific product and I would not want to say it is not on the shelf without looking, if you have reason to think it is.D'oh! Now I remember. After my five-year run as the undefeated math-olympiad champion of the world, I had a brief stint at DE Shaw, during which time I traded Nasdaq stocks, married a semi-ugly "trophy wife," and built a simulation of proteins that worked about as well as a cat's ass on fire.
Last edited by farmer on February 18th, 2014, 11:00 pm, edited 1 time in total.
 
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gardener3
Posts: 1496
Joined: April 5th, 2004, 3:25 pm

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February 19th, 2014, 7:35 pm

QuoteOriginally posted by: UltravioletShe asked for an opinion of a professional trader, farmer.Farmer gave a reasonable response to a very stupid question. I wonder why... he must be going soft...
 
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katastrofa
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Posts: 9585
Joined: August 16th, 2007, 5:36 am
Location: Alpha Centauri

Investment performance

February 19th, 2014, 10:05 pm

These are multiple trades, of course, and its FX spot - last time I checked trading options required much more assets (plus, I plan to move to the equity market completely in the "out-of-the-money" time horizon). I don't think what I do is scalping (series of very quick trades for small profits?), unless you're alluding to the lack of hedging.I withdraw part of the profits to reduce the risk and because personally I find investing in equity more challenging and fun, if you need to know.I trade for fun - out of curiosity whether my ideas work (financial markets are interesting systems to model - entirely different from what I investigated in physics). I got some "investors" because I wanted to have my own "hedge-fund", but I don't want to go beyond the quotes. Especially after the meeting with the person who asked me about my Sharpe ratio - he already told me how stupid I was and how his 70-year old mother made more sense talking money (I actually didn't even mention money!).I guess I couldn't phrase my question properly due to the lack of professional experience or nobody here is able to help me (I used to get very helpful responses to my naive and vague posts at nuclearphynance.com). Thanks anyway!a
Last edited by katastrofa on February 18th, 2014, 11:00 pm, edited 1 time in total.
 
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farmer
Posts: 13479
Joined: December 16th, 2002, 7:09 am

Investment performance

February 19th, 2014, 11:16 pm

QuoteOriginally posted by: katastrofanobody here is able to help me (I used to get very helpful responses to my naive and vague posts at nuclearphynance.com). Thanks anyway!Now now, don't be like that.
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