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Anybody heard of topsteptrader (review)

  #733 (permalink)

Concord, NH USA
Trading Experience: Intermediate
Platform: NinjaTrader, Sierra Chart
Broker/Data: Infinity
Favorite Futures: Crude CL
Posts: 32 since Jun 2012
Thanks: 47 given, 25 received

tpredictor View Post
I've monitored TST since shortly after inception. I continue to periodically review their offering to see if it might be something for myself. However, the terms have never really been very attractive in my opinion. As a vendor, also TST has offered some affiliate program but I didn't pursue that because I'm not convinced of the program and because I didn't think it would be worth much anyway.

My biggest problem with the program has always been the amount they fund traders with is rather trivial. The max DD is only 2x the daily loss limit for the 50k combine but not even 2x the daily loss limit for the higher combines. It seems pretty obvious that if the daily loss limit represents a realistic amount of risk that can be taken per day that the drawdown must be some higher multiple of the loss limit. And, I don't see why they even offer the higher combines when they only are willing to increase the max DD 50%. Beyond that, additions like FTP which seem like another possible way for them not to fund you and constant rule changes are a negative.

I will add that one time I did inquire one time about doing a custom combined. My terms were approved more or less. But, they did not offer any of the higher funding levels for the custom combines. And, so I did not pursue. I do think the custom combine was a step in right direction. I'm not sure whether or not it is still offered.

The other problem is that TST bills itself as a way to develop traders. But, it seems rather more likely that imposing so many constraints, starting so undercapitalized, etc would more likely lead to failure than success. Of course, that is not to imply that some constraints might help the developing or even already successful futures trader.

But, just if you turn the scenario on its head and someone came to me and told me they had 1k for me to risk per day in the markets and then told me they only had 2k total-- in any other scenario that'd be ridiculous. So, I don't see why so many people give TST a pass. And then with such a constrained starting position to put a time limit and a profit objective on top of that-- just doesn't seem serious in any way.

The big deal is that profit and risk are fairly strongly correlated among traders. The novice trader imagines that the great trader is able to profit without taking any risk. The reality is that the better traders take the same or more risk than the bad traders but they make better decisions overall which leads to profitability.

We shouldn't expect to hit our loss limit frequently. But, on the other hand if it that represents the true amount of maximum risk we can take then we should not hit it too infrequently either or else wouldn't be maximizing profit. There are any number of ways to estimate what a realistic DD level should be for a risk limit. I find 12x to be a reasonable guestimate. But, if you take the probability of hitting your max loss limit as 30% then over a trading month you have about an 80% (76.8%) chance of hitting the max DD limit. You can figure this using a runs calculator. Real life is worse because this assumes you are always make a profit on the days that you don't hit the loss limit or that they cumulatively cancel each other out. The calculation is 20 day trades, streak of length 2, loss probability 30%. You can search for "streak probability calculator" and find any number of such calculators on the web. An alternative method of calculating it, could be to create various random normal distributions but it still stands to reason that if you are going to be able to take a risk "near" the loss limit that the loss limit will be hit at some probability greater than zero.

The point is we know the MAX DD must be some multiple of the loss limit. But for the higher combines, it is not even 2x the loss limit. Even if you could do it then take the 100k combine, trade on a free simulator and put back the $325 per month into a savings account and you could start with more than total you are given in 10 months.

If I try to imagine what a realistic and serious TST type program might look like then I imagine it might look something like the following:

1. The max DD would be at least 6x the daily loss limit and could easily be justified much higher. That would translate to a 12k funding level for the 2k loss limit or 4x as much as they actually offer. Even this is a rather tight funding level. However, the premise would be that your loss limit would and risk would increase over time as you demonstrate capability.
2. The length of trader evaluation would probably be longer, more open ended, and not the same for every trader.
3. A super system might have to be developed to hedge the various positions. It would probably require that traders can trade from either side (long/short) depending on the overall position of the system. I.e. if the system says trade short you only can take short trades. Such a requirement should decrease the probability of luck being involved because the trader is forced to trade from a specified side of the market as dictated.
4. During the training period, a trader might have to profit from random sides of the market. But during the live phase, the side dictated would be determined based on overall/total exposure.

I appreciate the time and effort you gave to your analysis. Well done!

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