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TST Combine results and strategies for passing

  #87 (permalink)

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Thinking a 5% DD is VERY tight - no matter how your trading approach is - and under what circumstances it may happen.

From the Hedge Funds Market Wizards book, some of the fund managers have these stats, and all of these are funds that have been in business for somewhere around a decade or longer (and most of the average annualized returns are in the 20% or so range):

Colm O'Shea: -10.2% max DD, worst month -3.7%
Larry Benedict: -5% max DD, worst month -3.5%
Scott Ramsey: -11% max DD
Edward Thorp: 3 losing months in 19 years, all less than -1%
Michael Platt: -5% max DD

From Platt's chapter (p274):
"The deal is that if a trader loses 3 percent, he has to give me back half of his trading line. If he loses another 3 percent of the remaining half, that's it. His book is auctioned. ... We want people to scale down if they are getting it wrong and scale up if they are getting it right. If a guy has a $100 million allocation and makes $20 million, he then has $23 million to his stop point." [he then explains that this 3 percent stop is reset every Jan. 1]

Now, we are talking very different scenarios here, don't get me wrong. One is a few contracts allowed, another is a $100 million account (or many billions for some of the funds above) that has a lot of different options for diversification and risk management, so I'm not trying to say the two are comparable in size.

What I'm trying to say is that good traders (and in this case fund managers) put a lot of emphasis on risk control. For TST's smallest $30K account, I really don't see why 5% is viewed as so tight, particularly when the profit objective is 5%. Just as you said only "luck within a positive period" could account for successfully completing a combine, your view that a 5% max DD is "VERY tight" regardless of the approach is simply based on your limited paradigm. I'm not saying anything is right or wrong, but consider that something that seems out of the realm of reasonable probability in your view may very well be very reasonable and achievable for others.

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