TWDsje 

So I'll just come back to what's their 5 year sharpe ratio? I'm sorry that I end up picking on you, but it's really frustrating to talk about it in the thread already and still see people making the same mistake. To show that a trader or method really has edge you have to show performance on a risk adjusted performance measure over a long time period. What's happening is we think things have edge when they really don't because we don't know how to interpret performance metrics properly. And hence there's no way to separate out the noise.

You've been picking on me? Nothing you've said has been taken that way. I hope it wasn't intended?

I don't understand why you're frustrated. Beginners (like myself) come here looking for whatever info that might help them. We aren't all pros. At no point, to my recollection, have I ever suggested that any particular individual had any "edge." In fact, I thought I was pretty clear that I don't have one and so I can't speak to their existence. My suggesting various traders who trade live streaming wasn't an endorsement of their "edge." To my knowledge, none of the ones I suggested have ever even purported that they have an edge to share. I merely pointed out that there are people who do that sort of thing and that I have been able to learn something from them... ymmv. Please don't be frustrated with me.

However, I have personally found great value in watching them trade live. There is a certain level of honesty in it. To watch someone make a trade and lose a grand, own responsibility, shake it off and go golfing, is actually a model that I aspire to. I would hope in 2022, most people know not to take anything you see on youtube too literally.

As for the Sharpe ratio, I am only mildly familiar with it. I have created algos in Ninjatrader with Sharpes ratios approaching 10. I am aware that there is something wrong with that somewhere, but haven't really pursued an answer as I'm more concerned with the win ratio and profit per trade. If those aren't good, I don't care what Sharpe has to say (and they weren't).

I'll leave you with this. I started this week with a commitment to trade live money in the MES. It isn't my first time trading live but I did more trading this week than at anytime in the past. Wednesday, I was having a particularly bad day. Nothing I did seemed to work. That night, I watched a live stream recorded trading session for that day. Something about his calm demeanor contrasted with my own, shall we say "less" than calm nature, and it inspired me to be comfortable with my trades. I had a predetermined loss limit that I was comfortable with, so it wasn't that hard, once I had seen someone else do it. That day, I profited $200 in MES. I know that's not a lot for a pro, but to someone who had just had 3 straight days of losing, it gave me the courage to keep going.

The funny part of this is that I watched the same person's live stream today and he said in the opening disclaimer that he's trading in a sim account. LOL. I thought he was trading live money in the recording I watched and was impressed with his steely resolve under pressure with fairly large stop losses, but he was merely sim trading live. Moral of the story, his example of what trading should look like may have made the difference between me giving up and finishing the week as planned. I lost $20 on the week out of an estimated 60 trades (I haven't tabulated all of it yet). I consider that a huge success. Just about as good as I could hope for and it was based in great part on a lie. Hell Week over.

I don't consider constructive criticism to be "picking on" someone. If you do, then by all means, please keep picking on me. I'm still learning and appreciate everyone's insight.

BTW, to that end @bobwest, I was apprehensive about trading in a real account. I didn't think I was ready, but your gentle nudging is partly responsible (or to blame) for me venturing past my comfort zone and sim trading. I have learned a great deal this week.

Speaking about tennis (and trading).

"We often focus on trying to be brilliant, yet many great people get far more mileage out of avoiding making stupid mistakes. Amateurs win the game when their opponent loses points, experts win the game by gaining points."

Avoiding Stupidity is Easier than Seeking Brilliance.

chipwitch 

BTW, to that end @bobwest, I was apprehensive about trading in a real account. I didn't think I was ready, but your gentle nudging is partly responsible (or to blame) for me venturing past my comfort zone and sim trading. I have learned a great deal this week.

Good. You can learn a lot in sim, but it's a totally different universe out in the wide world of real trading.

Bob.

chipwitch 

You've been picking on me? Nothing you've said has been taken that way. I hope it wasn't intended? I don't understand why you're frustrated. Beginners (like myself) come here looking for whatever info that might help them. We aren't all pros. At no point, to my recollection, have I ever suggested that any particular individual had any "edge." In fact, I thought I was pretty clear that I don't have one and so I can't speak to their existence. My suggesting various traders who trade live streaming wasn't an endorsement of their "edge." To my knowledge, none of the ones I suggested have ever even purported that they have an edge to share. I merely pointed out that there are people who do that sort of thing and that I have been able to learn something from them... ymmv. Please don't be frustrated with me. However, I have personally found great value in watching them trade live. There is a certain level of honesty in it. To watch someone make a trade and lose a grand, own responsibility, shake it off and go golfing, is actually a model that I aspire to. I would hope in 2022, most people know not to take anything you see on youtube too literally. As for the Sharpe ratio, I am only mildly familiar with it. I have created algos in Ninjatrader with Sharpes ratios approaching 10. I am aware that there is something wrong with that somewhere, but haven't really pursued an answer as I'm more concerned with the win ratio and profit per trade. If those aren't good, I don't care what Sharpe has to say (and they weren't). I'll leave you with this. I started this week with a commitment to trade live money in the MES. It isn't my first time trading live but I did more trading this week than at anytime in the past. Wednesday, I was having a particularly bad day. Nothing I did seemed to work. That night, I watched a live stream recorded trading session for that day. Something about his calm demeanor contrasted with my own, shall we say "less" than calm nature, and it inspired me to be comfortable with my trades. I had a predetermined loss limit that I was comfortable with, so it wasn't that hard, once I had seen someone else do it. That day, I profited $200 in MES. I know that's not a lot for a pro, but to someone who had just had 3 straight days of losing, it gave me the courage to keep going. The funny part of this is that I watched the same person's live stream today and he said in the opening disclaimer that he's trading in a sim account. LOL. I thought he was trading live money in the recording I watched and was impressed with his steely resolve under pressure with fairly large stop losses, but he was merely sim trading live. Moral of the story, his example of what trading should look like may have made the difference between me giving up and finishing the week as planned. I lost $20 on the week out of an estimated 60 trades (I haven't tabulated all of it yet). I consider that a huge success. Just about as good as I could hope for and it was based in great part on a lie. Hell Week over. I don't consider constructive criticism to be "picking on" someone. If you do, then by all means, please keep picking on me. I'm still learning and appreciate everyone's insight. BTW, to that end @bobwest, I was apprehensive about trading in a real account. I didn't think I was ready, but your gentle nudging is partly responsible (or to blame) for me venturing past my comfort zone and sim trading. I have learned a great deal this week.

Fair enough. I apologize as it's nothing personal. I have been streaming for five years, and the people that are just starting out definitely get the most use out of it. I just don't think enough people realize that often the profits are just derived from taking on risk. The viewers seem to forget or dismiss the times it catches up with you and blows the account. Because I think people watch this stuff and say "see price action is the way to go" and the only thing I'm really sure works for retail is knowing the news before everyone else does.

I was being quite conservative, and doing ok with it for the past 8 months. Now the bond market is just getting crazy, and it is exhausting. Maybe I will switch to sim soon as well.

When you get a sharpe of 10 in the Ninja backtester it's probably because you are unknowingly cheating. Like it's using Heiken Ashi bars or something like that.

TWDsje 

Fair enough. I have been streaming for five years

I haven't watched your channel yet, but you're on my list. I appreciate your honesty approach and only just learned of you since joining here. You really need to talk to Youtube about bumping your channel... generally, the top of my feed suggestions are filled with pictures of cash and cars, wrt trading. I've seen a couple of them, but they don't offer anything except an insight into a narcissist's need for attention

Quoting 

When you get a sharpe of 10 in the Ninja backtester it's probably because you are unknowingly cheating. Like it's using Heiken Ashi bars or something like that.

Nope, no exotic candles... just plain old candlesticks. I have suspected some of their numbers are wrong and even questioned them on the forum to no great effect. No one could explain to me why how my "Probability" was 2 when my algo found 12 trades, all winners. So, I've learned to not put too much stock in their numbers. The Sharpe's I get sometimes make me laugh though. A 10.0... If only!

lightsun47 

Not advertising, but I think Bookmap will come closest in finding where the big players are sitting and what forces are driving the prices where and why. Spoofing is there as usual, but once you can recognize the legit executions, Bookmap allows to see something which I believe nothing else can come close by in real time. My experience. Sent using the NexusFi mobile app

Thank you for sharing I have access to it and have watched and read a few things on it, practiced it today in sim and was up the first 30 trades, unfortunately I was slow to react to one and finished the day slightly down lol, are there any resources you yourself found particularly useful?

chipwitch 

You can read the rules from a book. To gain more points than your opponent? That takes practice "Style," as you put it is accurate. If you wanted to be a painter, how successful do you think you'd be to copy Picasso or Van Gogh? "Style" is deeply personal and develops over time. You are right, you need to find your style. No one can find it for you. You're on the right track asking questions, but at some point you have to trust yourself to make mistakes. Then, how you choose to fix those mistakes is what defines "style.".

Mistakes have never been a problem for me lol, what can one do but persevere?

TWDsje 

Fair enough. I apologize as it's nothing personal. I have been streaming for five years, and the people that are just starting out definitely get the most use out of it. I just don't think enough people realize that often the profits are just derived from taking on risk. The viewers seem to forget or dismiss the times it catches up with you and blows the account. Because I think people watch this stuff and say "see price action is the way to go" and the only thing I'm really sure works for retail is knowing the news before everyone else does. I was being quite conservative, and doing ok with it for the past 8 months. Now the bond market is just getting crazy, and it is exhausting. Maybe I will switch to sim soon as well. When you get a sharpe of 10 in the Ninja backtester it's probably because you are unknowingly cheating. Like it's using Heiken Ashi bars or something like that.

I saw your youtube we have spoken on reddit before lol. Wasn't aware you streamed as well, I will support your channel and check it out

Mich62 

Though the Sharpe ratio is one of the most widely used methods for calculating risk-adjusted return it has several weaknesses, for example the assumption that investment returns are normally distributed. Long-Term Capital Management (LTCM) had a very high Sharpe ratio of 4.35 before it imploded in 1998.

I'm not bringing up the Sharpe ratio again to discuss alternative ways to calculate return, but to expand on this mention by @Mich62 of LTCM a little, even though this is sort of ancient history now.

For anyone who isn't familiar with Long-Term Capital Management, it was stunningly successful and had Nobel Prize winners on its board (the surviving founders of the Black-Scholes pricing model, no less) and prominent institutional managers, and then it blew up spectacularly in 1998, apparently in part because its inability to manage its risk. Billions were lost. The theoretical underpinnings of its approach were supposed to protect it from these risks, but didn't do so, although there probably were other factors as well. It's interesting that having the best academic and institutional people did not let them avoid this outcome.

(See https://en.wikipedia.org/wiki/Long-Term_Capital_Management for details.)

Does this mean that there really is no hope? Or does it mean that you should not trust your trading ideas too far and should always mind your risks and control your losses? Of course, LTCM would have said they were doing that, and that was in fact their strongest claim to potential investors. I do think it should make us pause when believing that the retail trader in particular has no chance in a market dominated by behemoths. The behemoths have their problems, too. And when you're that big, you can't just get out of a losing position with a stop loss. The market can't digest an order that big. Size can be a negative.

The number of institutional firms that have disappeared is fairly high, and the list is long.

One might say that well, if "even the big boys" have problems, what hope is there for the little ones?

I think that at any one time there is a group of hopeful new retail traders-to-be who come in with extremely unrealistic ideas about the markets and about their chances. I think we all start there. Then there is a process that involves some being weeded out (they lose enough to give up and go try something else) and some learning enough to become more realistic (they lose enough to realize they didn't know so much after all.) At that point, progress can begin.

So what does this have to do with LTCM and all that?

Only that any long-term assessment of the validity of anyone's approach, while it is the only thing we have to go on, is not the key either. You really do get paid to take on risk, and there is no guarantee that you will continue to be successful at it, no matter what your size. But that is ultimately where the profit is, if there is any.

There are theoretical approaches to the markets that say that is why trading profits, in the long term, are impossible. I think that this is almost true. The fact that the only way to make profits is to take on risk is exactly the same with any business. To be in business, which trading is, is inherently risky. All markets are competitive, in any business, and the effect of competition is always to drive profits toward zero. Yet, while most fail, in any field, some don't.

I think this is the realism with which we have to approach the markets: some things will work, most will not. How you manage your risk is as big a part of the equation as the method you trade with, if not a bigger one. It's part of why even very good ideas by very good people (as in, LTCM) can fail. But it's part of why not everyone does, also.

Bob.

bobwest 

I'm not bringing up the Sharpe ratio again to discuss alternative ways to calculate return, but to expand on this mention by @Mich62 of LTCM a little, even though this is sort of ancient history now.

@bobwest, I either read or heard last year that Sharpe did not intend to have his calculation used for how most people use it (predictor of returns), but that hedge fund managers, CTA's and the like to it and ran with it. There are major flaws with it's usage, and becomes pointless for short term traders (IMO), but it is still used extensively, particularly in marketing their funds. Personally, I ignore it and use other metrics for my trading. If high net worth individuals want to use it to decide where to invest their money, then good for them.

Perry Kaufman published an article in the bonus edition (2022) of Technical Analysis of Stocks & Commodities magazine, in which he states: "The best criterion for success is profits". (50 Years On, What Have I Learned?). Sounds about right.

Not to sidetrack the main discussion, but here is an interesting thread from last year based on the Serenity Ratio, an alternative to Sharpe, in which we discuss Serenity, Sharpe, and Ulcer Index. There are some good sources for further reading in that thread:

Serenity Ratio Calculation I heard about the Serenity Ratio on one of the Top Traders Unplugged podcast, which can be an alternative to the Ulcer Index, Sharpe Ratio, and Pain Index. I am wondering if anyone has the calculation for this? I know this is higher-end stuff used …